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What is the synergy from the merger

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Reference no: EM132364475

  • Fordis, Inc. is considering acquiring Stetson Corporation.
  • Neither firm has debt.
  • Fordis forecasts that its annual after-tax cash flows would increase by $4 million indefinitely by making this acquisition.
  • Fordis' current market value = $250 million
  • Stetson's current market value = $140 million
  • The appropriate discount rate for the incremental cash flows is 10%
  • Fordis has 1 million shares outstanding (and another 3 million authorized).

a) What is the Synergy from the Merger? What is the estimate of the value of the newly-merged firm?

b) What is the most that Fordis should offer for Stetson?

c) What is the NPV of acquisition to Fordis if it pays $150 million in cash to Stetson?

d) What is the NPV of the acquisition to Fordis if instead of cash it issues 600,000 new shares to Stetson's shareholders to acquire the firm?

e) Should the firm attempt the merger? If so, with which offer?

f) How many shares would Fordis have to issue to make the stock offer equal to the cash offer of $150 million (all else constant)?

Reference no: EM132364475

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