What happens if you are short a stock that gets acquired?
Posted by admin in Finance Thursday, 13 October 2011 12:40 3 Comments
Say you short a stock in company A. Company A is being purchased by Company B a few months from now in a stock-for-stock merger transaction on Oct 1st.
What happens to the short position in company A, if an investor holds on up until the merger date (Oct 1)?
Let me be clear – the merger has already been announced so there is no ‘run-up’ in price leading up to it.
So on the day the merger is supposed to close, you would have to buyback shares from someone correct?
The broker will call your position and demand you cover.
You’ll need to cover. No matter what’s the price.
This would be a bad position to be in. You’d have to cover the short position, and in the event of a merger, the acquired company’s stock usually gets run up because the purchaser usually winds up paying a premium for it.