Target Company

A target company is a business that another company (or an investor group) is trying to buy or merge with. If Company A wants to acquire Company B, then Company B is the "target" and Company A is the "acquirer" or "bidder."

The process usually starts with an offer, either negotiated privately with the target's board (a "friendly" deal) or made directly to shareholders when the board isn't cooperating (a "hostile" takeover). The acquirer typically offers a price above where the stock is currently trading, called a premium, because shareholders have no reason to sell otherwise. That offer can be in cash, in shares of the acquiring company, or some mix of both.

The nuance that trips people up: being a target does not mean the deal is guaranteed to happen. Offers get rejected, renegotiated, outbid by a rival suitor, or blocked by regulators reviewing antitrust or national-security concerns. Between the announcement and the actual completion (or collapse) of the deal, the target's stock price tends to sit somewhere below the offer price, with the gap reflecting the market's estimate of how likely and how fast the deal will close. That gap, and trading around it, is the basis of a strategy called merger arbitrage.

It's also worth separating "target company" from "target price," which is an analyst's forecast for where a stock might trade, and from "price target" in a trade plan, which is just where a trader intends to take profit. Same word, unrelated concepts.