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Harrods PLC has a market value of pound 133 million and 5 million shares outstanding. Selfridge Department Store has a market value of pound 35 million and 2 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods's CFO concludes that the combined firm with synergy will be worth pound 183 million, and Selfridge can be acquired at a premium of pound 10 million.
a. If Harrods offers 1.2 million shares of its stock in exchange for the 2 million shares of Selfridge. what will the stock price of Harrods be after the acquisition?
b. What exchange ratio between the two stocks would make the value of a stock offer equivalent to a cash offer of pound 45 million?
The overall concept of a contribution margin is pretty straightforward- it is how much each unit contributes to covering fixed costs and eventually, profit.
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