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Consider a company with heavily shorted stock. If that company puts itself up for sale and a friendly (shareholder approved) acquisition happens, can it result in a short squeeze driving the price of the stock (of course, temporarily) above the agreed/announced takeover price?

Note that I don't mean the price of the stock being higher than the buyout price due to effects discussed in Why is Dell currently trading above the buyout price?

I am only interested if the price can spike up above the set limit because of the short squeeze effect.

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Yes, short covering can raise share price above the offered buy out price. This occasionally occurs when the buy out price is significantly higher than current price and there's a gap up.

If there are no other companies rumored to be possibly offering a higher buy out price then share price will correct down to the buy out price as new shorters come in, hoping that the buy out offer is solid.

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  • If only the original shorters could have waited a bit longer they could have taken the places of the subsequent shorters... – Michael Feb 10 at 2:53
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    @Michael - Every trade has a buyer and seller and one of them is almost always going to be able to say "If I could only have waited a bit longer". – Bob Baerker Feb 10 at 3:56

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