Determine that after getting control of 50% shares in a leveraged buyout, the likely price of the non-tendered shares. Given that UWC, a potential prospect for leveraged buyout has 2 million shares outstanding and has a stock price of $20 and the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered. For driving a leveraged buyout, a financial institution should be ready to fund the acquisition based on a loan. When a leveraged buyout process is started, a significant share of the company’s shares is bought at a premium from the market and pledged to the funding institution. The person or entity launching the leveraged buyout gets control of the company. The company on its balance sheet carries the loan taken for the leveraged buyout deal.

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Answer 1

Question

Chapter 28, Problem 18P

a.

Summary Introduction

Determine that after getting control of 50% shares in a leveraged buyout, the likely price of the non-tendered shares. Given that UWC, a potential prospect for leveraged buyout has 2 million shares outstanding and has a stock price of $20 and the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered.

For driving a leveraged buyout, a financial institution should be ready to fund the acquisition based on a loan. When a leveraged buyout process is started, a significant share of the company’s shares is bought at a premium from the market and pledged to the funding institution. The person or entity launching the leveraged buyout gets control of the company. The company on its balance sheet carries the loan taken for the leveraged buyout deal.

b.

Summary Introduction

Determine whether the shareholders will tender their shares, given that the share prices will be $15.50 after the announcement of the leveraged buyout. Given that UWC, a potential prospect for a 50% leveraged buyout, and has 2 million shares outstanding with a stock price of $20, the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered for 50% of the shares.

c.

Summary Introduction

Determine the gain in the transaction of the leveraged buyout firm in the transaction, assuming that all the shareholders agree to sell their shares at $25.

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Students have asked these similar questions

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)?

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 levered buyout firm and are evaluating a potential buyout of Boogle Inc. Boogle's stock price is $18, and it has 3 million shares outstanding. You believe that if you buy the company and replace its dismal management team, its value will increase by 50%. You are planning on doing a levered buyout of Boogle and will offer $25 per share for control of the company. Assuming you get 50% control, your gain from the transaction will be closest to: Answer choices: A) $2.0 million B) $5.0 million C) $4.7 million D) $6.0 million

Answer 2

Question

Chapter 28, Problem 18P

a.

Summary Introduction

Determine that after getting control of 50% shares in a leveraged buyout, the likely price of the non-tendered shares. Given that UWC, a potential prospect for leveraged buyout has 2 million shares outstanding and has a stock price of $20 and the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered.

For driving a leveraged buyout, a financial institution should be ready to fund the acquisition based on a loan. When a leveraged buyout process is started, a significant share of the company’s shares is bought at a premium from the market and pledged to the funding institution. The person or entity launching the leveraged buyout gets control of the company. The company on its balance sheet carries the loan taken for the leveraged buyout deal.

b.

Summary Introduction

Determine whether the shareholders will tender their shares, given that the share prices will be $15.50 after the announcement of the leveraged buyout. Given that UWC, a potential prospect for a 50% leveraged buyout, and has 2 million shares outstanding with a stock price of $20, the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered for 50% of the shares.

c.

Summary Introduction

Determine the gain in the transaction of the leveraged buyout firm in the transaction, assuming that all the shareholders agree to sell their shares at $25.

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Answer 3

Question

Chapter 28, Problem 18P

a.

Summary Introduction

Determine that after getting control of 50% shares in a leveraged buyout, the likely price of the non-tendered shares. Given that UWC, a potential prospect for leveraged buyout has 2 million shares outstanding and has a stock price of $20 and the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered.

For driving a leveraged buyout, a financial institution should be ready to fund the acquisition based on a loan. When a leveraged buyout process is started, a significant share of the company’s shares is bought at a premium from the market and pledged to the funding institution. The person or entity launching the leveraged buyout gets control of the company. The company on its balance sheet carries the loan taken for the leveraged buyout deal.

b.

Summary Introduction

Determine whether the shareholders will tender their shares, given that the share prices will be $15.50 after the announcement of the leveraged buyout. Given that UWC, a potential prospect for a 50% leveraged buyout, and has 2 million shares outstanding with a stock price of $20, the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered for 50% of the shares.

c.

Summary Introduction

Determine the gain in the transaction of the leveraged buyout firm in the transaction, assuming that all the shareholders agree to sell their shares at $25.

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Answer 4

Question

Chapter 28, Problem 18P

a.

Summary Introduction

Determine that after getting control of 50% shares in a leveraged buyout, the likely price of the non-tendered shares. Given that UWC, a potential prospect for leveraged buyout has 2 million shares outstanding and has a stock price of $20 and the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered.

For driving a leveraged buyout, a financial institution should be ready to fund the acquisition based on a loan. When a leveraged buyout process is started, a significant share of the company’s shares is bought at a premium from the market and pledged to the funding institution. The person or entity launching the leveraged buyout gets control of the company. The company on its balance sheet carries the loan taken for the leveraged buyout deal.

b.

Summary Introduction

Determine whether the shareholders will tender their shares, given that the share prices will be $15.50 after the announcement of the leveraged buyout. Given that UWC, a potential prospect for a 50% leveraged buyout, and has 2 million shares outstanding with a stock price of $20, the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered for 50% of the shares.

c.

Summary Introduction

Determine the gain in the transaction of the leveraged buyout firm in the transaction, assuming that all the shareholders agree to sell their shares at $25.

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Answer 5

Chapter 28, Problem 18P

a.

Summary Introduction

Determine that after getting control of 50% shares in a leveraged buyout, the likely price of the non-tendered shares. Given that UWC, a potential prospect for leveraged buyout has 2 million shares outstanding and has a stock price of $20 and the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered.

For driving a leveraged buyout, a financial institution should be ready to fund the acquisition based on a loan. When a leveraged buyout process is started, a significant share of the company’s shares is bought at a premium from the market and pledged to the funding institution. The person or entity launching the leveraged buyout gets control of the company. The company on its balance sheet carries the loan taken for the leveraged buyout deal.

b.

Summary Introduction

Determine whether the shareholders will tender their shares, given that the share prices will be $15.50 after the announcement of the leveraged buyout. Given that UWC, a potential prospect for a 50% leveraged buyout, and has 2 million shares outstanding with a stock price of $20, the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered for 50% of the shares.

c.

Summary Introduction

Determine the gain in the transaction of the leveraged buyout firm in the transaction, assuming that all the shareholders agree to sell their shares at $25.

Answer 6

Chapter 28, Problem 18P

a.

Summary Introduction

Determine that after getting control of 50% shares in a leveraged buyout, the likely price of the non-tendered shares. Given that UWC, a potential prospect for leveraged buyout has 2 million shares outstanding and has a stock price of $20 and the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered.

For driving a leveraged buyout, a financial institution should be ready to fund the acquisition based on a loan. When a leveraged buyout process is started, a significant share of the company’s shares is bought at a premium from the market and pledged to the funding institution. The person or entity launching the leveraged buyout gets control of the company. The company on its balance sheet carries the loan taken for the leveraged buyout deal.

Answer 7

Chapter 28, Problem 18P

a.

Summary Introduction

Determine that after getting control of 50% shares in a leveraged buyout, the likely price of the non-tendered shares. Given that UWC, a potential prospect for leveraged buyout has 2 million shares outstanding and has a stock price of $20 and the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered.

For driving a leveraged buyout, a financial institution should be ready to fund the acquisition based on a loan. When a leveraged buyout process is started, a significant share of the company’s shares is bought at a premium from the market and pledged to the funding institution. The person or entity launching the leveraged buyout gets control of the company. The company on its balance sheet carries the loan taken for the leveraged buyout deal.

Answer 8

b.

Summary Introduction

Determine whether the shareholders will tender their shares, given that the share prices will be $15.50 after the announcement of the leveraged buyout. Given that UWC, a potential prospect for a 50% leveraged buyout, and has 2 million shares outstanding with a stock price of $20, the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered for 50% of the shares.

Answer 9

b.

Summary Introduction

Determine whether the shareholders will tender their shares, given that the share prices will be $15.50 after the announcement of the leveraged buyout. Given that UWC, a potential prospect for a 50% leveraged buyout, and has 2 million shares outstanding with a stock price of $20, the assessment is that after buying the company and replacing the management, the value of the company will increase by 40%. For the leveraged buyout, a price of $25 will be offered for 50% of the shares.

Answer 10

c.

Summary Introduction

Determine the gain in the transaction of the leveraged buyout firm in the transaction, assuming that all the shareholders agree to sell their shares at $25.

Answer 11

c.

Summary Introduction

Determine the gain in the transaction of the leveraged buyout firm in the transaction, assuming that all the shareholders agree to sell their shares at $25.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 28.1 - Prob. 1CC Ch. 28.1 - Prob. 2CC Ch. 28.2 - On average, what happens to the target share price...Ch. 28.2 - Prob. 2CC Ch. 28.3 - What are the reasons most often cited for a...Ch. 28.3 - Prob. 2CC Ch. 28.4 - Prob. 1CC Ch. 28.4 - What do risk arbitrageurs do?Ch. 28.5 - Prob. 1CC Ch. 28.5 - Prob. 2CC

Solution Summary: The author explains how a financial institution should fund the leveraged buyout by pledging the purchased shares, and determines whether shareholders will tender their shares.

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Determine the gain in the transaction of the leveraged buyout firm in the transaction, assuming that all the shareholders agree to sell their shares at $25.

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