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."
"Most companies get taken over eventually. More to the point, ANY company with a public float over 50 percent that's large and viable enough to fall on people's radar screens will get taken over if its stock price is ""too low"" relative to its long term prospects.  It is the possibility of a takeover, as much as anything else, that bolsters the stock prices of many companies, particularly those that don't pay dividends. In essence, the takeover price is just one large liquidating ""dividend.""" "The statement can be true, but isn't a general rule. Crashes and recessions are two different things. A crash is when the market rapidly revalues something when prices are out of equilibrium, whether it be stocks, a commodity or even a service.  When the internet was new, nobody knew how to design webpages, so web page designers were in huge demand and commanded insane price premiums. I literally had college classmates billing real companies $200+/hr for marginal web skills. Eventually, the market ""clued up"" and that industry collapsed overnight. Another example of a crash from the supply point of view was the discovery of silver in the western US during the 19th century -- these discoveries increased the supply of the commodity to the point that silver coin eroded in value and devastated small family farms, who mostly dealt in silver currency. Recessions are often linked to crashes, but you don't need a crash to have a recession. Basically, during a recession, trade and industrial activity drop. The economy operates in cycles, and the euphoria and over-optimistic projections of a growing or booming economy lead to periods of reduced growth where the economy essentially reorganizes itself. Capital is a (if not the) key element of the economic cycle -- it's a catalyst that makes things happen. Debt is one form of capital -- it's not good, not bad. Generally cheap capital (ie. low interest rates) bring economic growth. Why? If I can borrow at 4%, I can then perform some sort of economic activity (bake bread, make computers, assemble cars, etc) that will earn myself 6, 8 or 10% on the dollar. When interest rates go up, economic activity slows, because the higher cost of credit increases the risk of losing money on an investment. The downside of cheap capital is that risk taking gets too easy and you can run into situations like the $2M ranch houses in California. The downside of expensive/tight capital is that it gets harder for businesses to operate and economic activity slows down. The effects of either extreme cascade and snowball." A recent survey conducted in Australia shows that although their mining sector is enjoying a boom, services sector is in an opposite condition. Most of the contraction was caused by a decline in new orders among the various players in the services sector while sales and prices also fell.     Just 2 out of 9 sub-sectors (namely, personal and recreational services and finance and insurance) included in the survey has grown during the month. The increased activity in the mining sector is not positively affecting the remaining sectors of the local market.     The chief executive of the Australian Industry Group (AI Group) said that the contraction in the services industry just shows how narrow is its base of development in the broad market.     Several stability in financial states abroad in a period of few months will be favorable for allowing consumer and business confidence to improve, resulting in a gradual increase in spending.     More than half of the world’s mining acquisitions in 2011 has involved projects located in US, Australia and Canada. Other buyers include China, India, Russia and Brazil, all of which increased their acquisitions by 42% since 2006.     In terms of gold, the average deal is valued at USD 41 million where a premium is almost 50%. Propelling the lucrative market is Australia with 15%, United States with 14% and Canada with 49%.     Considering the bigger picture of the industry, PwC seems to be expecting that this year will see record M&amp;A valuations and volumes in the mining sector worldwide.     According to the company, sovereign wealth funds tend to have more advantage in winning transactions because of their low cost of capital.     PwC is assuming that non-miners like sovereign wealth funds, large pension funds and private equity might reassess their approach to the industry and begin to participate more in M&amp;A. S & P's site has a methodology link that contains the following which may be of use: Market Capitalization. Unadjusted market capitalization of US$ 4.6   billion or more for  the S&P 500, US$ 1.2 billion to US$ 5.1 billion   for the S&P MidCap 400, and US$ 350  million to US$ 1.6 billion for   the S&P SmallCap 600. The market cap of a potential  addition to an   index is looked at in the context of its short- and medium-term   historical  trends, as well as those of its industry. These ranges are   reviewed from time to time to  assure consistency with market   conditions.  Liquidity. Adequate liquidity and reasonable price – the   ratio of annual dollar value  traded to float adjusted market   capitalization should be 1.00 or greater, and the company  should   trade a minimum of 250,000 shares in each of the six months leading up   to the  evaluation date.  Domicile. U.S. companies. For index purposes,   a U.S. company has the following  characteristics:  The final determination of domicile eligibility is made by the U.S.   Index Committee. "Market cap is the current value of a company's equity and is defined as the current share price multiplied by the number of shares. Please check also ""enterprise value"" for another definition of a company`s total value (enterprise value = market cap adjusted for net nebt). Regarding the second part of your question: Issuing new shares usually does not affect market cap in a significant way because the newly issued shares often result in lower share prices and dilution of the existing share holders shares." "To add to @keshlam's answer slightly a stock's price is made up of several components: the only one of these that is known even remotely accurately at any time is the book value on the day that the accounts are prepared. Even  completed cashflows after the books have been prepared contain some slight unknowns as they may be reversed if stock is returned, for example, or reduced by unforeseen costs.  Future cashflows are based on (amongst other things) how many sales you expect to make in the future for all time. Exercise for the reader: how many iPhone 22s will apple sell in 2029? Even known future cashflows have some risk attached to them; customers may not pay for goods, a supplier may go into liquidation and so need to change its invoicing strategy etc.. Estimating the risk on future cashflows is highly subjective and depends greatly on what the analyst expects the exact economic state of the world will be in the future. Investors have the choice of investing in a risk free instrument (this is usually taken as being modelled by the 10 year US treasury bond) that is guaranteed to give them a return. To invest in anything riskier than the risk free instrument they must be paid a premium over the risk free return that they would get from that. The risk premium is related to how likely they think it is that they will not receive a return higher than that rate. Calculation of that premium is highly subjective; if I know the management of the company well I will be inclined to think that the investment is far less risky (or perhaps riskier...) than someone who does not, for example. Since none of the factors that go into a share price are accurately measurable and many are subjective there is no ""right"" share price at any time, let alone at time of IPO. Each investor will estimate these values differently and so value the shares differently and their trading, based on their ever changing estimates, will move the share price to an indeterminable level. In comments to @keshlam's answer you ask if there is enough information to work out the share price if a company buys out the company before IPO. Dividing the price that this other company paid by the relative ownership structure of the firm would give you an idea of what that company thought that the company was worth at that moment in time and can be used as a surrogate for market price but it will not and cannot accurately represent the market price as other investors will value the firm differently by estimating the criteria above differently and so will move the share price based on their valuation." A lower Price/Book Value means company is undervalued. It could also mean something horribly wrong. While it may look like a good deal, remember; "The textbook answer would be ""assets-liabilities+present discounted value of all future profit"".  A&L is usually simple (if a company has an extra $1m in cash, it's worth $1m more; if it has an extra $1m in debt, it's worth $1m less). If a company with ~0 assets and $50k in profit has a $1m valuation, then that implies that whoever makes that valuation (wants to buy at that price) really believes one of two things - either the future profit will be significantly larger than $50k (say, it's rapidly growing);  or the true worth of assets is much more - say, there's some IP/code/patents/people that have low book value but some other company would pay $1m just to get that. The point is that valuation is subjective since the key numbers in the calculations are not perfectly known by anyone who doesn't have a time machine, you can make estimates but the knowledge to make the estimates varies (some buyers/sellers have extra information), and they can be influenced by those buyers/sellers; e.g. for strategic acquisitions the value of company is significantly changed simply because someone claims they want to acquire it. And, $1m valuation for a company with $500m in profits isn't appropriate - it's appropriate only if the profits are expected to drop to zero within a couple years; a stagnant but stable company with $500m profits would be worth at least $5m and potentially much more."