What is the premium paid (%) if a company's post-acquisition share price is lower than its pre-acquisition share price?

The correct answer pertains to calculating the premium paid in mergers and acquisitions when the post-acquisition share price is less than the pre-acquisition share price. In this specific scenario, the premium paid can indeed be calculated, and it is reflected by the formula that considers the difference between the pre-acquisition and post-acquisition prices relative to the pre-acquisition share price.

When the post-acquisition share price declines compared to what it was before the acquisition, this indicates a loss of perceived value. The premium paid formula used in this context captures this change:

Premium Paid = (Pre-Acquisition - Post-Acquisition) / Pre-Acquisition

This formula effectively calculates the percentage decrease in value when comparing the higher pre-acquisition price to the lower post-acquisition price. It shows how much of a premium was effectively "lost" in percentage terms after the acquisition.

The other options do not correctly address the situation or provide a viable approach to calculating the premium in this particular case. For instance, one option states that the premium is always negative, which fails to recognize that premiums can still be calculated as positive values by focusing on the proportion of the loss when framed correctly. Another option suggests that it cannot be calculated, which undermines the ability to