If the acquisition is financed through a stock exchange, the value of the deal for the target’s shareholders depends on the exchange ratio and the valuation of the merged company.
But in the presence of asymmetric information, how can the acquirer convince the target’s shareholders to accept shares in the merged company if they suspect that those shares are overvalued?
That is a hard question. Intuitively, they know it is overpriced, but they do not know by how much, so there might still be an exchange ratio. The full explanation is way beyond the scope of the course