Takeover Premium
The percentage above a target company's pre-announcement share price paid by an acquirer to gain control.
What is Takeover Premium?
A takeover premium (also called a control premium) is the excess amount an acquirer pays above a target company's pre-announcement market share price in a merger or acquisition, expressed as a percentage of the unaffected price. It reflects the value the acquirer places on controlling the target—including expected synergies, the elimination of competition, and the strategic benefits of combining the businesses—and compensates target shareholders for surrendering their equity at a price above current market value. Takeover premiums in US M&A transactions have historically averaged 20%–40% over the 30-day unaffected share price, though premiums vary widely based on competition for the target, strategic urgency, and market conditions. The premium is a central input in fairness opinion analyses conducted by investment banks for the target's board.
Example
Microsoft's January 2022 announcement of its $95.00 per share all-cash offer for Activision Blizzard represented a takeover premium of approximately 45% over Activision's closing price of $65.39 the day before announcement, and approximately 46% over Activision's 30-day volume-weighted average price of $65.00. The premium reflected Microsoft's valuation of the gaming content library, the Call of Duty franchise, and the strategic importance of mobile gaming capabilities for its Xbox and cloud gaming platform.