How much would the tender cost the bidder

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A company has 100 shares outstanding, which are currently trading at $10. 10% of shares are owned by management. The remaining shares are held by public investors. 1/3 of the public investors believe the shares are worth $10, 1/3 believe they are worth $11, and 1/3 believe they are worth $12. A hostile bidder wants to take over this company. Management has a vested interest in retaining control, and therefore will not sell. Shareholders may be willing to sell at the right price. Assume that shareholders believe the shares will be worth the same under the bidder as under the existing management, and indifferent shareholders will sell rather than hold their shares. Assume a successful tender requires 50% voting control of the firm's shares, which can be acquired via a conditional tender offer. If the offer is oversubscribed tendered shares will be accepted on a pro-rata basis.

Question 1: What price per share would bidder have to offer to a successful tender?

Question 2: How much would the tender cost the bidder?

Reference no: EM133060486

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