You work for a leveraged buyout firm and are evaluating a potential buyout of Associated Steel. Associated Steel's stock price is $15 and it has 10 million shares outstanding. You believe that if you buy the company and replace its management, its value will increase by 50%. You are planning on doing a leveraged buyout of Associated Steel, and will offer $20 per share for control of the company. Assuming you get 50% control of Associated Steel, then the price of the non-tendered shares will be closest to: Answer choices A) $15.00 B) $17.50 C) $20.00 D) $12.50

You work for a leveraged buyout firm and are evaluating a potential buyout of Associated Steel. Associated Steel's stock price is $15 and it has 10 million shares outstanding. You believe that if you buy the company and replace its management, its value will increase by 50%. You are planning on doing a leveraged buyout of Associated Steel, and will offer $20 per share for control of the company. Assuming you get 50% control of Associated Steel, then the price of the non-tendered shares will be closest to: Answer choices A) $15.00 B) $17.50 C) $20.00 D) $12.50

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 31P

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Hager’s Home Repair Company, a regional hardware chain, which specializes in “do-it-yourself” materials and equipment rentals, is considering an acquisition of Lyon Lighting (LL). Doug Zona, Hager’s treasurer and your boss, has been asked to place a value on the target and he has enlisted your help. LL has 20 million shares of stock trading at $12 per share. Security analysts estimate LL’s beta to be 1.25. The risk-free rate is 5.5% and the market risk premium is 4%. LL’s capital structure is 20% financed with debt at an 8% interest rate; any additional debt due to the acquisition also will have an 8% rate. LL has a 25% federal-plus-state tax rate, which will not change due to the acquisition. The following data incorporate expected synergies and required levels of total net operating capital for LL should Hager’s complete the acquisition. The forecasted interest expense includes the combined interest on LL’s existing debt and on new debt. After 2024, all items are expected to grow at a constant 6% rate. Note: aDebt is added on the first day of the year, so the 2019 debt is LL’s debt prior to the acquisition. Hager’s management is new to the merger game, so Zona has been asked to answer some basic questions about mergers as well as to perform the merger analysis. To structure the task, Zona has developed the following questions, which you must answer and then defend to Hager’s board: Briefly describe the differences between a hostile merger and a friendly merger.
You work for a leveraged buyout firm and are evaluating a potential buyout of Associated Steel. Associated Steel's stock price is $20 and it has 10 million shares outstanding. You believe that if you buy the company and replace its management, its value will increase by 100%. You are planning on doing a leveraged buyout of Associated Steel, and will offer $20 per share for control of the company. Assuming that you use equity (your own money) to pay for this deal, what will be your gain from the deal? What about other shareholders? Now assume you use debt to finance the deal. How does this change your gains vs. other shareholders when compared to part (B)?
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(Associated Steel, continued) You work for a leveraged buyout firm and are evaluating a potential buyout of Associated Steel. Associated Steel's stock price is $15 and it has 10 million shares outstanding. You believe that if you buy the company and replace its management, its value will increase by 50%. You are planning on doing a leveraged buyout of Associated Steel, and will offer $20 per share for control of the company. Regarding your tender offer, shareholders will: Answer choices A) not tender their shares since the post LBO price is higher than the current price. B) tender their shares since the post LBO price is lower than the current price. C) not tender their shares since the post LBO price is higher than the offer price. D) tender their shares since the post LBO price is higher than the offer price.
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You are told by your investment advisor that Laduma Co. is expected to earn R5 per share next year, R6 per share the following year and that thereafter earnings are expected to grow by 8 percent per year. The dividend payout ratio is 60 percent and the required rate of return on Laduma shares is 15 percent. If the current share price is R40, would you expect your adviser to make a buy, hold or sell recommendation? If transaction costs are R2,50 per share, would you follow his advice? 16 D(1) = D (3) = P(T) = P(0) = Buy/sell: Net Procceed: Buy/sell: