This news came around 5 days back where Tega is buying its global competitor which around 10 times bigger than itself. Considering history of such takeovers (small fish eating a big one) and debt Tega has to take on its books (and service it for many years), I was expecting a big downside to the share price. In reality, it moved within range of 4%, (albeit with volumes 10 times its daily average) which is nothing as compared to the news. One likely reason is very low public shareholding (5%).
Any other thoughts about such a reaction from the market?
I do not know if the 4% up movement is the correct reaction or not. However I have observed markets works in a Bayesian way. It will adjust the price as new information becomes available. I had observed a similar thing when the merger of HDFC/HDFC BANK was announced. On that day or the next, it went up by 10%. Then gradually as new information became available, the price was re-adjusted to the markets view of the value. Somewhat similar manner the Gujarat gas (merger/ demerger) story also played out. One the day it was announced it went up, then gradually, over a period of time, as new information became available the price got adjusted.
That it is not say, the price will go up or down from here. But rather, the market will chew and digest the news over a period of time. And as new information becomes available, the price will get adjusted.
I hope this helps.
Also, many times the market already knows such a deal is in the offing, so the news is already discounted. The post-announcement reaction does not tell the whole story. Here for example, there seems to be a distinct increase in volumes from about mid-July onwards, which may be due to the upcoming deal. It is difficult to isolate the exact reaction of the market to such news. I would assume the entire market move from Rs.1500+ to the current level is driven by the deal. Interestingly, AIA Engineering has fallen during this period that Tega went up 30 %. So it looks like market has given a thumbs up to the deal.
