Fundamentals of Financial Management (MindTap Course List)
14th Edition
ISBN: 9781285867977
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 21, Problem 3P
Summary Introduction
To Determine: The range of possible prices it could bid for each share of Corporation V's common stock from the results obtained from 21-1 and 21-2.
Introduction: A merger is the mix of two organizations into one by either shutting the old entities into one new entity or by one organization engrossing the other. In other terms, at least two organizations are united into one organization to form a merger.
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Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.
Firm B
Firm T
Shares outstanding
6,400
1,600
Price per share
$
48
$
19
Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $8,900.
a.
If Firm T is willing to be acquired for $21 per share in cash, what is the NPV of the merger?
b.
What will the price per share of the merged firm be assuming the conditions in (a)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.
If Firm T is willing to be acquired for $21 per share in cash, what is the merger premium?
d.
Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for every two of T's shares, what will the price per share of the merged firm be? (Do not round intermediate calculations and round your answer to 2…
Describe some of the positives and negatives from the point of view of both the acquirer and the target in a merger. What is the usual impact on the stock prices of each?
Consider the following data in relation to a proposed acquisition, where Firm B will take over Firm A in a horizontal takeover.
Pre-merger Value A
$550m
Pre-merger Value B
$420m
Post-merger Value A + B
$1,150m
Cash Offer
$580m
Share Offer
52% of Shares in A + B
Estimate the gains available from the merger.
Estimate the value of the merger to firm A’s shareholders under both the cash and share offer.
Estimate the value of the merger to firm B’s shareholders under both the cash and share offer.
Which offer will predominate, cash or shares, if the shareholders of A are given the choice?
Chapter 21 Solutions
Fundamentals of Financial Management (MindTap Course List)
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Similar questions
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- Consider the following information about Firm A and Firm T: Item Firm A (Acquiring firm) Firm T (Target firm) Price per share $20 $15 Outstanding shares 50 25 Total market value $1000.00 $375 Total cost of the acquisition is $500.00 and the merger is estimated to create a synergistic gain of $700.00. What is the merger premium? Select one: a. $150.00 b. $135.00 c. $125.00 d. $175.00arrow_forwardConsider the following information about Firm A and Firm T: Item Firm A (Aquiring Firm Firm T (Target Firm Price/share $20 $15 Outstanidng shares 50 25 Total market value $1,000.00 $375 Total cost of the acquisition is $500.00 and the merger is estimated to create a synergistic gain of $700.00. What is the merger premium? Select one: a. $135.00 b. $125.00 c. $175.00 d. $150.00arrow_forwardFirm X is going to acquire Firm Y. The acquisition will be done via a share exchange, whereby Firm X will exchange two of its shares for every one of Firm Y’s shares. Synergy is $1,500,000 in total. Firm X (Bidder) Firm Y (Target) Shares Outstanding 1,500,000 150,000 Price per Share $50 $80 Earnings 2,400,000 1,950,000 43. What is the takeover premium in dollars? (Tip: round the share price of the combined firm to two decimal places in calculating your answer.) A) $5,700,000 B) $1,500,000 C) $2,751,000 D) $2,500,000 E) $3,000,000arrow_forward
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