Can a company buy a bigger company?

Yes, a small company can buy a larger, higher-valued company. How can this be done? Basically one of four ways:

• Debt purchase: Small co., worth $1.5B (let's say they have $300M in cash, $1.2B in operating assets, and no debt) takes on, say, $2B in debt, and buys Big Co., a company worth $2.2B, paying $200M from their cash reserves and using the new debt to fund the rest. Why would anyone lend $2B in debt to a company worth only $1.5B? Because the bank believes the loan will be repaid, with interest, probably because it will get shares in Big Co. as collateral, or a similar arrangement, so risk is mitigated. Nothing nefarious here - Big Co. shareholders receive a cheque for $2B as the value of their company, and everyone walks away smiling.

• Share issuance As above, but instead of financing by taking on debt, Small Co. could get a cash injection by raising funds for a new share issuance. Suddenly, Small Co. isn't worth $1.5B anymore, it gets an extra $2B of cash, and becomes a company worth $3.5B, and uses its new cash to buy Big Co.

• Stock Swap This could happen a lot of ways - basically shares change hands on both sides, and one company mostly owns the other at the end of the day, but shareholders of both company now own eachothers' assets. An example would be Small co could offer up its shares to Big Co's shareholders, in exchange for shares in Big Co.. Using the example above, 60% of Big Co. shareholders might decide to sell their shares to Small Co., [meaning $880M of Big Co. shareholders decided not to sell]. In exchange, Small Co. could issue new shares worth the 1.32M price, to Big Co. shareholders, so Small Co. owns 60% of Big Co., but 60% of Big Co. shareholders now own 1.32B worth of the new Small Co.

• Reverse Buyout Similar to some forms of a stock swap, a reverse buyout happens when small Co just buys up 60% of Big Co, and now that they own more than 50%, they can elect more than half of the Board of Directors, and effectively control that company - at some point a merger of the two companies may occur. Still, nothing nefarious here - Big Co. shareholders will get compensated along the way if they sell to Small co., and shareholders that don't sell will still own their old % of Big Co. as before.