Why doesn't the market capitalization of a company match its acquisition price during a takeover?
"Short answer: google finance's market cap calculation is nonstandard (a.k.a. wrong). The standard way of computing the market capitalization of a firm is to take the price of its common stock and multiply by the number of outstanding common stock shares.  If you do this using the numbers from google's site you get around $13.4B.  This can be verified by going to other sites like yahoo finance and bloomberg, which have the correct market capitalization already computed. The Whole Foods acquisition appears to be very cut-and-dry.  Investors will be compensated with $42 cash per share. Why are google finance's numbers wrong for market cap?  Sometimes people will add other things to ""market capitalization,"" like the value of the firm's debt and other debt-like securities.  My guess is that google has done something like this.  Whole Foods has just over $3B in total liabilities, which is around the size of the discrepancy you have found."
Two reasons why I think that's irrelevant: First, if it was on 3/31/2012 (two other sources say it was actually 4/3/2012), why the big jump two trading days later? Second, the stock popped up from $3.10 to $4.11, then over the next several trading days fell right back to $3.12. If this were about the intrinsic value of the company, I'd expect the stock to retain some value. I was merely trying to be helpful - Conceptually, you have dump this idea that something is skewed. It isn't. Firm A sold for $500 (equity value aka purchase price to shareholders) + debt (zero) - cash (50) for 450.  Enterprise value is the cash free, debt free sale price.  The implied ev multiple is 4.5x on A - that is the answer. The other business sold for a higher multiple of 5x.  If you would pile on more cash onto A, the purchase price would increase, but the EV wouldn't.      The idea is to think hard about the difference between equity value and enterprise value when examining a transaction. Market cap is basically the amount of money that it would cost to buy all of the shares of public stock in a company.  Or  share cost * number of outstanding shares. It is a measure of how much a company is worth. http://en.wikipedia.org/wiki/Market_capitalization When a stock is going to become public there's a level of analysis required to figure out the range of IPO price that makes sense. For a company that's somewhat mature, and has a sector to compare it to, you can come up with a range that would be pretty close. For the recent linkedin, it's tougher to price a somewhat unique company, running at a loss, in a market rich with cash looking for the next great deal. If one gives this any thought, an opening price that's so far above the IPO price represents a failure of the underwriters to price it correctly. It means the original owners just sold theirvshares for far less than the market thought they were worth on day one. The day of IPO the stock opens similar to how any stock would open at 9:30, there are bids and asks and a price at which supply (the ask) and demand (bid) balance. For this IPO, it would appear that there were enough buyers to push the price to twice the anticipated open and it's maintained that level since.  It's possible to have a different system in which a Dutch auction is used to make the shares public, in theory this can work, it's just not used commonly. It is ALWAYS possible for a company's valuation in the market to be larger than the market it serves, and in fact it is not uncommon.  There's valid argument that Uber would be a good example of this, with a market cap of more than $60 billion.  Market cap is the total value of all shares outstanding.  Keep in mind that what a company's shares  trade for is less a reflection of its past (or, to some degree, even present) revenue activity and more of a speculative bet on what the company will do in the future. "For the first and last questions, I can do this multiple ways.  For the middle question, I'll just make up values.  If you want different ones, you will have to redo the math.   I am going to assume that you participate in the merger exchange, swapping your share for their offer.   If you own one share, it depends how they handle fractional shares.  Your original one share of ABC can be worth either one share of XYZ or 1.05 shares of XYZ.  If you get one share, you typically get an additional $.80 cash to make up for the fractional share.   You might ask why you don't just get $20 cash and one share of XYZ.  Consider the case where you own twenty shares of ABC.  Then you'd own twenty-one shares of XYZ and $384.  No need for fractional shares.   Beyond all this though, the share value of XYZ is not set autocratically.  The shares might be worth $16, $40, or $2 after the merger.  If both stocks are perfectly valued and the market is aware of that value, then it will depend partially on the number of shares of each.   For example, if we assume there are 10,000 shares of ABC and 50,000 shares of XYZ (including the shares paid for ABC), then their initial market values are $320,000 for ABC and $800,000 for XYZ.  XYZ is paying $360,000, so its value drops to $440,000.  But it is gaining ABC, which is worth $320,000.  Net value now is $760,000 or $15.20 per share.   This has assumed that the shares transferred from XYZ to the shareholders of ABC were already included in the market value.  This may mean that the stock price was previously $20 or so with almost 40,000 shares in circulation.  Then they issued new shares, diluting the value down to $16.  We could start at 50,000 shares at $16 and end up with 60,000 to 60,050 shares at $13.332 to $13.333 per share.  Then XYZ is really only paying $326,658.31 for ABC.  That's a premium of only $6,658.31 for ABC and gives a final stock value of $13.222 per share.   The problem though is that in reality, there is no equivalent of perfect value.  So I say again that the market value might be $15.20 (the theoretic answer that best fits the question given the example quantities of shares), $13, $20, or something else.  It will depend on how the market perceives the deal.  Is the combined company worth more or less than the sum of its parts?   And beyond this, you will have $19.20 to $20 in cash in addition to your XYZ share (or 1.05 shares).  Assuming 1.05 shares, that would be $15.96 plus the $19.20--that's $35.16 total in theory or anything from $19.20 up in practice.  With the givens, the only thing of which you can be sure is the $19.20 cash.  The value of the stock is up in the air.   If XYZ is only privately traded, this is still true.  The stock is worth the price that someone will pay for it.  The ""someone"" is just more limited with privately traded stocks." I didn't mean to imply that the perceived value of a company on the stock market somehow proved that the companies had not lost capital or value. But it sure is a clear datapoint to juxtapose against all of the other hard facts in play. Often, the stock market isn't wrong... even if it may lag. If these companies have all this loss, is that baked into the current price? But again I was just merely grasping for the details from the plethora of sources given. I surely missed the real meat of the data. Market Capitalization is the equity value of a company. It measures the total value of the shares available for trade in public markets if they were immediately sold at the last traded market price. Some people think it is a measure of a company's net worth, but it can be a misleading for a number of reasons. Share price will be biased toward recent earnings and the Earnings Per Share (EPS) metric. The most recent market price only reflects the lowest price one market participant is willing to sell for and the highest price another market participant is willing to buy for, though in a liquid market it does generally reflect the current consensus. In an imperfect market (for example with a large institutional purchase or sale) prices can diverge widely from the consensus price and when multiplied by outstanding shares, can show a very distorted market capitalization. It is also a misleading number when comparing two companies' market capitalization because while some companies raise the money they need by selling shares on the markets, others might prefer debt financing from private lenders or sell bonds on the market, or some other capital structure. Some companies sell preferred shares or non-voting shares along with the traditional shares that exist. All of these factors have to be considered when valuing a company. Large-cap companies tend to have lower but more stable growth than small cap companies which are still expanding into new markets because of their smaller size. So far buying of own by own companies like Apple, is concerned it will surely raise the price of the script. At some level, the share prices are a factor of supply and demand at a given price. Apple being a very demanded script, its supply in the market goes down with the buy back. After a while, this will surely make the script price rise. It also depends at what price the buy back is affected. If the buy back is done at a right price, it will help the existing shareholder. If a very high price is paid, it will erode shareholders wealth.  Hence each buy back needs to be studies separately. There are several and at times complex variables which determines if the buy back is good for continuing shareholders or not. They don't have to track each other, it could just be listed on more than one exchange.  The price on one exchange does not have to match or track the price on the other exchange. This is actually quite common, as many companies are listed on two or more exchanges around the world. This depends. Quite a few stock exchanges / country report total capitalisation in terms of free float. I.E total shares that can be traded, ignoring the promoters shares. The market cap reported by company takes all shares. Value is the key word here. Traders should ideally trade on the perceived future value of a company.  Changes in the perceived future value is what leads them to buy and sell shares. That said, if a company were to have some catastrophe happen (say it and all of its employees and property disappeared)  and somehow every shareholder agreed to not sell, the companies market capitalization would remain unmoved even though the value of the company is gone. So theoretically yes, but it is unlikely. "At any given moment, one can tally the numbers used for NAV. It's math, and little more. The Market Cap, which as you understand is a result of share value. Share value (stock price) is what the market will pay today for the shares. It's not only based on NAV today, but on future expectations. And expectations aren't the same for each of us. Which is why there are always sellers for the buyers of a stock, and vice-versa.  From your question, we agree that NAV can be measured, it's the result of adding up things that are all known. (For now, let's ignore things such as ""goodwill."") Rarely is a stock price simply equal to the NAV divided by the number of shares. Often, it's quite higher. The simplest way to look at it is that the stock price not only reflects the NAV, but investors' expectations looking into the future.  If you look for two companies with identical NAV per share but quite different share prices, you'll see that the companies differ in that one might be a high growth company, the other, a solid one but with a market that's not in such a growth mode." "The market capitalization of a stock is the number of shares outstanding (of each stock class), times the price of last trade (of each stock class). In a liquid market (where there are lots of buyers and sellers at all price points), this represents the price that is between what people are bidding for the stock and what people are asking for the stock.  If you offer any small amount more than the last price, there will be a seller, and if you ask any small amount less than the last price, there will be a buyer, at least for a small amount of stock. Thus, in a liquid market, everyone who owns the stock doesn't want to sell at least some of their stock for a bit less than the last trade price, and everyone who doesn't have the stock doesn't want to buy some of the stock for a bit more than the last trade price. With those assumptions, and a low-friction trading environment, we can say that the last trade value is a good midpoint of what people think one share is worth.  If we then multiply it by the number of shares, we get an approximation of what the company is worth. In no way, shape or form does it not mean that there is 32 billion more invested in the company, or even used to purchase stock. There are situations where a 32 billion market cap swing could mean 32 billion more money was invested in the company: the company issues a pile of new shares, and takes in the resulting money.  People are completely neutral about this gathering in of cash in exchange for dilluting shares.  So the share price remains unchanged, the company gains 32 billion dollars, and there are now more shares outstanding. Now, in some sense, there is zero dollars currently invested in a stock; when you buy a stock, you no longer have the money, and the money goes to the person who no longer has the stock. The issue here is the use of the continuous tense of ""invested in""; the investment was made at some point, but the money doesn't really stay in this continuous state of being.  Unless you consider the investment liquid, and the option to take money out being implicit, it being a continuous action doesn't make much sense. Sometimes the money is invested in the company, when the company causes stocks to come into being and sells them. The owners of stocks has invested money in stocks in that they spent that money to buy the stocks, but the total sum of money ever spent on stocks for a given company is not really a useful value. The market capitalization is an approximation, which under the efficient market hypothesis (that markets find the correct price for things nearly instantly) is reasonably accurate, of the value the company has collectively to its shareholders.  The efficient market hypothesis isn't accurate, but it is an acceptable rule of thumb. Now, this value -- market capitalization -- is arguably not the total value of a company: other stakeholders include bond holders, labour, management, various contract counter-parties, government and customers.  Some companies are structured so that almost all value is captured not by the stock owners, but by contract counter-parties (this is sometimes used for hiding assets or debts). But for most large publically traded companies, it (in theory) shouldn't be far off." "You'll generally get a number close to market cap of a mature company if you divide profits (or more accurately its free cash flow to equity) by the cost of equity which is usually something like ~7%.    The value is meant to represent the amount of cash you'd need to generate investment income off it matching the company you're looking at. Imagine it as asking ""How much money do I need to put into the bank so that my interest income would match the profits of the company I'm looking at"". Except replace the bank with the market and other forms of investments that generate higher returns of course and that value would be lower."