> Okta, whose cloud software allows office workers to access all of their apps through a secure online service, said on Wednesday that it’s spending $6.5 billion to acquire rival Auth0. Okta’s shares plunged about 13% in extended trading after the announcement. Huh? Generally speaking, companies acquire other companies to become more valuable, not for their shares to go down . And even more so when the acquired compa…
One simplified reason for why this occurs is that the management of a company is who decides whether to make an acquisition. That management might think it's in their interest (prestige, compensation, etc.) to lead a larger, more important company. One way they can do that is by acquiring a competitor, and they might even be willing to overpay to accomplish that goal. The board of the company, often appointed by management, doesn't provide true oversight of the management's decisions.
In other words, the incentives of management are misaligned with the incentives of investors.
Management's response to this theory might be that the market (investors) doesn't understand their business, and isn't properly valuing the acquisition.
I'm more sympathetic to the first view, but I believe there's research supporting both views.