What is the acquisition premium for target shareholders

Assignment Help Financial Management

Reference no: EM131947541

An acquirer’s standalone share price is $12 and its number of shares outstanding is 1,000,000. The target firm has 100,000 shares outstanding, and its standalone share price is $10. The present value of the after-tax synergy gains from merging the two firms is $500,000.

a. If the acquirer offers to buy the target for $13 in cash, what is the acquisition premium for target shareholders?

b. If the acquirer offers to buy the target for $13 in cash, what is the NPV of the deal for acquirer shareholders?

c. If instead the offer price for the target firm is 1.2 shares of the acquirer for every share of the target, what should the acquirer’s post deal stock price be?

d. Under the conditions in c. above, what is the NPV of the deal for acquirer shareholders?

e. What is the exchange ratio in this deal that would leave the acquirer’s stock price unchanged from before to after the merger?

f. Under the conditions in c. above, what would the acquirer’s stock price be if the synergy gains were only $300,000? Does the deal still create value for acquirer shareholders?

-For question #1c., what is the post-merger ownership distribution? In other words, what fraction of the newly merged firm is owned by the old acquirer shareholders and what fraction is owned by the old target shareholders?

Reference no: EM131947541

Questions Cloud

What is company free cash flow for year one of project : What is the company’s free cash flow for year 1 of this project?

Examine methods of job analysis : From the e-Activity, examine two (2) methods of job analysis described in the video. Then, determine the purpose and the expected outcome for each method.

What role does the vocal play in contrast to instrumentation : "Whole Lotta Love" by Led Zeppelin is based on a riff. What is the song form and how does this dissection help analyze how the song is performed?

What is minimum amount of operational synergies : what is the minimum amount of operational synergies (in present value, and in dollars) that Roboticon must expect from this deal?

What is the acquisition premium for target shareholders : If the acquirer offers to buy the target for $13 in cash, what is the acquisition premium for target shareholders?

Determining the proper use of selection procedures : What framework for determining the proper use of selection procedures, including test procedures, has been used by courts in deciding cases related to unfair.

Contractor estimates that maintenance on piece of equipment : A contractor estimates that maintenance on a new piece of equipment will be $275 for the first month and it will increase by 0.5% each month afterwards.

Credit pulls databases : Credit Pulls Databases. What are the biggest problems with making financial decisions based on anecdotal, crowdsourced info?

Best credit cards rates : Best Credit Cards Rates. Why are even the best credit card rates still so high? What’s the best way to use a 0% intro rate?

User Account

All Pages