Fate of a distressed firm's stock after an acquisition can vary greatly

— -- Q: What happens to a distressed corporation's stock when the company is purchased by another corporation?

A:There's no shortage of companies feeling the pain from the recession.

Some public companies, including Chrysler, are choosing to file for bankruptcy protection. That's creating a banner year for large bankruptcy protection proceedings.

Other companies are going another route: Trying to become acquired by another firm. Perhaps the best example so far this year of a distressed company being bought by a stronger company was when Sun Microsystems was bought by Oracle.

But to address your question, there's no standard fate for a company or its stock after an acquisition. Typically, investors in the bought-out distressed company will either receive cash, shares in the acquiring company or a combination of the two. How much cash or shares you receive as a shareholder of a weak company is a function of what the company was worth at the time of the buyout offer.

For instance, Sun shareholders are to receive $9.50 a share in cash for every share of the company they own. That was quite a premium over the $5.76 a share Sun was trading for before Oracle made its offer.

But remember, too, that not all distressed companies are bought out for much more than their share prices. And sometimes, if a distressed company is carrying a great deal of debt, the buyout offer could be for less than the current stock price.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns. Follow Matt on Twitter at: twitter.com/mattkrantz