Why is the following statement correct? “If there were a pre-announcement run-up in Quadrant’s price because of speculation, the takeover premium should be computed based on the price prior to the run-up” I thought the RJR-Nabisco takeover was a good counter-example to that statement.
The idea here is that the run-up is based on speculative trading activity (so baking in the premium to a certain extent). The analyst should use a combination of intrinsic value assessment and pre-merger speculation stock price to determine the takeover premium. I don’t see the example you’re referring to, but happy to take a look if you can point me in the right direction.
Thanks ro424, the comment is on page 279 of the curriculum, EOC12 on page 280.
Fair enough.
However, should we really use such a combination suggested?
See CFAI Vol. 3 p. 264, footnote 21.
I believe so, this is one way of getting the “selected representative price”; see footnote 23.
@ ro424.