Mampae-iii corp is investigating the possible acquisition

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E-III Corp. is investigating the possible acquisition of Silicon Inc. Assume that both firms have no debt outstanding.

                                                                                    E-III Corp.                  Silicon Inc.

Pre-announcement stock price                                    $15.00                         $12.00

 

Number of shares outstanding                                    8 million                      6 million

The synergy from the acquisition is estimated to be $22 million. Both firms agree that Silicon Inc. will be acquired for $13.50 per share. They are negotiating methods of payment: an all-cash offer, a stock exchange offer, as well as a combination of cash and stock exchange offer ($7.5 cash per share of Silicon plus 0.4 shares of E-III per share of Silicon). Calculate the value of the merged company, the gains (losses) to each group of shareholders, NPV of the deal under different payment methods. Synergy remains the same regardless of payment method.

Reference no: EM13346609

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