Why don’t stocks trade at their buyout price?

When a company announces they are being bought out by another company at an exact price, say $10 per share, often the share price will head towards the $10 share price. Most of the time though, it will not trade at exactly $10 per share. So, if I know that the company will be bought out at $10 per share and the share price is currently trading at $9.98, why can’t I just buy as many shares as I can at $9.98 and then get paid out when the company is bought out at $10 per share? Seems like guaranteed profit, right? Not exactly.

Below are some of the reasons why:

• A sale is never guaranteed until it goes through (e.g. sale might be ruled out by the antitrust commission for fear that violates antitrust and competition laws). If there is speculation that this might happen, the share price will trade quite a bit below the proposed buyout price.
• Other parties might bring a higher bid to the table creating a bidding war. Speculation of a bidding war could send the trading price way above the proposed buyout price.
• Even if the sale is all but guaranteed, the trading price will often stay slightly below the buyout price as traders weigh up the transactional commission costs with the spread. In other words, your fees will often outweigh the small spread in the share price.