Hi all,I have relatively simple and straightforward question: why would a company's share price go up, after the announcement of a takeover (or reverse merger) offering a price at substantial discount ?For example, ABC Co. shares have been trading at $2.00. One day, ABC announced that it will issue 1million new shares to Giant Co at $0.08, thereby selling the controlling the stake to Giant Co. Meanwhile, Giant Co. has to make a general offer to other shareholders at the same price $0.08/share. However what I observed on the market after the announcement is that share price immediately increased to something like $4.00 with huge turnover. Can anybody explain why this might happen? Would market manipulation be the only explanation or is there some other mechanism that market has already priced into ? Why would any investor wanna buy at $4.00 when they know that it's only worth $0.08 to the potential buyer? Are they just betting on the long-term prospects of the company after the new buyer takes over?Thank you!Fish.

I think Special Situations teams would make judgement about about the possibility of a different valuation. BTW one way of looking for in play but not announced sits is abnormally high implied vol in the options relative to the sector averages and similar companies. D

I haven't done this for a while but I would try something like this to understand it:pre event:ABC shares trade at $2.00, but what is the book value of these shares (book value of company attributable to shareholders / number of shares)?... get this (price to book) ratioPost eventvalue of company attributable to shareholders increases by $0.08*1million + $0.08*num of new shares to existing holders...get new book value per shareapply pre-event price to book ratio to post event book value per share to get post event share price...now...If I hold 1 pre-event share and this event is announced the value of the share includes the right to participate in the new offering... so see what this is worth.I haven't done this stuff for a while, but having just written all this down I think the situation you mention doesn't make much sense. They can't be selling shares worth $2 for $0.08...Wanna tell us what the deal was?