What value of x will you lobby for with the legislature

Reference no: EM133291059

You are the CEO of a sporting goods company called STS. Your management team has diligently identified a terrific acquisition target called Bats R Us (BRU). BRU manufactures cricket bats, and will be a great addition to STS. In particular, due to operational synergies, STS can increase the value of BRU stock from its current price of 15 dollars a share to 30 dollars a share. There is a 1 million dollar legal cost for going through the acquisition process. There are currently 1 million shares of BRU and 10 million shares of STS in the market. To gain control of BRU, STS must buy 50% of BRU shares. Both STS and BRU are incorporated in the state of Indiana.

Suppose all shares of BRU are completely dispersed. What is the maximum price (per share) that STS can offer to acquire BRU, and still make positive profit? Assume that legally STS has to announce its intentions of buying BRU before buying even a single share.
Now suppose that the Indiana company law allows STS to silently buy X% shares of BRU before openly declaring their intention to acquire control of the company. What values of X make takeover possible?
As part of the management of BRU, you want to prevent the takeover of your company. You have connections with the state legislature in Indiana. What value of X will you lobby for with the legislature of Indiana?
Now suppose that BRU shareholding is not completely dispersed, and instead the Bradman family owns 55% of the shares. What share price should STS offer now?
Suppose that the Bradman family only owned 25% of BRU stock, and knows that with 40% probability, STS will gain control of BRU if they reject STS bid. However, with 90% probability STS will gain control of BRU if they accept the STS bid. What prices will the Bradman family accept?

Reference no: EM133291059

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