What is new market value and share price

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Question - The financial manager of Firm GAMMA is considering the possible purchase of Firm DELTA. The manager would like to pay £6.5m to take over the Firm DELTA and expects that the market value of the combined firm would be worth £62m.

Based on the following basic data:

Firm GAMMA. Firm DELTA

Market value of firm £45million £5m

Number of shares. 0.5m 0.3m

(a) Suppose that Firm DELTA is bought for cash, calculate the cost and NPV of the merger from Firm GAMMA's viewpoint. What is new market value and share price of the combined firm?

(b) If this merger is financed by stock, how many new shares should Firm GAMMA issue? What is the exchange ratio? What is the new share price of the combined firm?

(c) Explain the main differences between cash and stock financing mergers?

(d) Briefly present the process to value a merger.

(e) Discuss how to defend an unfriendly merger proposal.

Reference no: EM132990658

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