Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN: 9781337395250
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Textbook Question
Chapter 21, Problem 3P
MERGER BID On the basis of your answers to problems 21-1 and 21-2, if Hastings were to acquire Visscher, what would be the range of possible prices it could bid for each share of Visscher common stock?
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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…
he NFF Corporation has announced plans to acquire LE Corporation. NFF is trading for $ 64 per share, and LE is trading for $ 13 per share, implying a pre-merger value of LE of approximately $ 6.7 billion. If the projected synergies are $ 2.07 billion, what is the maximum exchange ratio NFF could offer in a stock swap and still generate a positive NPV? Question content area bottom Part 1 The maximum exchange ratio NFF could offer in a stock swap and still generate a positive NPV is enter your response here. (Round to three decimal places.)
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?
Chapter 21 Solutions
Fundamentals of Financial Management (MindTap Course List)
Ch. 21 - Prob. 1QCh. 21 - Prob. 2QCh. 21 - Prob. 3QCh. 21 - In the spring of 1984, Disney Productions stock...Ch. 21 - Prob. 5QCh. 21 - VALUATION Visscher currently expects to pay a...Ch. 21 - MERGER VALUATION Hastings estimates that if it...Ch. 21 - MERGER BID On the basis of your answers to...Ch. 21 - Prob. 4PCh. 21 - CAPITAL BUDGETING ANALYSIS The Stanton Stationery...
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- 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?arrow_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_forwardThe shareholders of Bread Company have voted in favor of a buyout offer from Butter Corporation. Information about each firm is given here: Bread Butter Price-earnings ratio 5.26 21.04 Shares outstanding 57,000 228,000 Earnings $ 205,000 $ 1,025,000 Bread's shareholders will receive one share of Butter stock for every five shares they hold in Bread. What will the EPS of Butter be after the merger? What will the PE ratio be if the NPV of the acquisition is zero?arrow_forward
- Consider 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_forwardConsider 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_forwardJPix management is considering a stock split. JPix currently sells for$120 per share and a 3-for-2 stock split is contemplated. What will be thecompany’s stock price following the stock split, assuming that the split hasno effect on the total market value of JPix’s equity?arrow_forward
- Identify which anti-hostile takeover strategies are being described. [S1] A merger will only push through if at least 80% of the outstanding capital stock vote for this decision. [S2] A third entity purchases the remaining 30% shares so that the would-be acquirer cannot increase its ownership of the corporation from 41% to 71%.a. Supermajority provision; White Knightb. Lobster Trap; Creeping Tender Offerc. Lobster Trap; White Knightd. Supermajority provision; Creeping Tender Offerarrow_forwardDirection: discuss how the following models are used. • Merger & Acquisition (M&A) Model• Initial Public Offering (IPO) Model• Forecasting Model• Budget Model• Discounted Cash Flow (DCF) Modelarrow_forward4. The following table shows pre-merger data for ABC Company and XYZ, Inc. ABC XYZ No of share outstanding 2,000,000 5,000,000 EPS $2.50 $4.00 Price per share $15.00 $60 a) Assume XYZ is taking over ABC by issuing one of its shares for four shares of ABC. If there is no synergy, what would be the post-merger share price of XYZ? What would be the NPV of the merger? b) Assume there is synergy value of $4,200,000 created from the merger. What would be the post-merger price per share of XYZ? What would be the NPV of the merger? 5. Lazos Company is in distress mainly due to its failure to adopt the current technology. Creditors took Lazos to bankruptcy court and Lazos is fighting for a reorganization. The following is its condensed balance sheet. Book Value Market Value Current assets $ 120,000.00 $ 100,000.00 Machinery 200,000.00 150,000.00 Other fixed…arrow_forward
- According to Kaplan and Strömberg, approximately what percent of LBO-acquired firms are acquired in a second buyout? Multiple Choice 1% 5% 6% 24% 38%arrow_forwardIf Genie went ahead with the acquisition of Aladdin, what is the total value of the acquisition? ( What is the maximum price per share that Genie should be willing to pay for this acquisition? 3)If Genie decided to go ahead with the cash acquisition, what will be its price per share after the acquisition?arrow_forwardPlease answer with reason for all why the option is correct and why the other options are incorrectPlease answer correct otherwise skip it When a company buys the stock of another company, the accounting treatment depends on the number of outstanding shares acquired. If a company acquires 35% of the shares (as a percentage of the outstanding shares) of another company, the accounting method the acquirer uses is: - consolidation method - fair value method - equity method - Any of the above. The materiality principle allows the company to choose the method.arrow_forward
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