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Stock Price Behavior After an Acquisition: CNBC Explains

Sunday, 29 May 2011 | 12:00 AM ET

When a company is bought, its stock price is directly affected and may shoot up or down significantly. When one company is purchased using shares of another, the acquired company's stock price generally tracks at a ratio to the price of the acquiring company's stock. How and why does this work? Salman Khan of the Khan Academy explains in a hypothetical example.