Harrods PLC has a market value of 400 million and 30 million shares outstanding. Selfridge Department Store

Question:

Harrods PLC has a market value of £400 million and 30 million shares outstanding. Selfridge Department Store has a market value of £160 million and 18 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods’s CFO concludes that the combined firm with synergy will be worth £590 million, and Selfridge can be acquired at a premium of £15 million.

a. If Harrods offers 12 million shares of its stock in exchange for the 18 million shares of Selfridge, what will the stock price of Harrods be after the acquisition?

b. What exchange ratio between the two stocks would make the value of the stock offer equivalent to a cash offer of £175 million?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...