I am interested in buying stock in a company that is struggling and may be bought by another company, or may file for bankruptcy. If I buy common stock from this company and they are absorbed by another company does my stock value immediately become the same value as the purchasing company? Also what happens to my stock if the company files for bankruptcy protection?? Thanks for the help.

If one company buys another, the effect on the stockholders of the bought company depends on the terms of the deal. Companies buy one another usually through a combination of stock and cash. Suppose company A is bought out by Company B - if the purchase is made with company B's stock, the usual process is the company A shareholders turn in their stock certificates and receive some number of new shares of company B stock. The number of shares you receive is dependent on what the overall sale price of company A is, the number of company A shares outstanding, and the market price of company B stock. You will receive a letter from Company B explaining how this works. In general the number of shares of Company B you receive is different than the number of shares of Company A you used to own. But your overall cost basis in your new Company B stock holdings is the same as your original basis was in Company A. Alternatively, if it's an all cash deal then when Compnay B buys A you have effectively sold all your shares to company B at the price they negotiated.

If the company files for bankruptcy you continue to hang onto your shares and hope that they emerge from bankruptcy down the road. This has happened with most of the major airlines in the past few years. However, if the company completely folds your stock may end up worthless - think Enron or Washington Mutual Bank. At that point you can use your share certificates to wallpaper your bathroom walls.

I have a follow on question from a different perspective..

I am part of a company (private company) for which I own a number of shares. I acquired these shares by way of a buyout clause.. essentially I had the option of converting incentive stock options to stock when our company got bought out (see https://www.askmehelpdesk.com/corpor...ml#post1495393)

I had obtained an offer for the shares at the time of the original buyout... from the new owner... however to date he has not paid me

Now AGAIN the company (well only PART of the company) has been sold again... neither has gone bankrupt (yet) but at least one of them may be heading that way..

My question is... since I had an offer from the owner a year ago, to buy my shares at a certain price... does this new, recent legal event matter to me?