Mistral Software is considering a merger with Amsted Technologies. Mistral has 1.2 million shares outstanding with a value of $22, while Amsted has 800,000 shares outstanding with a $23 value. The merged company's WACC will be 10%.
a. If Mistral believes the combined firm will have a market value of $50 million, what value of synergy is anticipated?
b. Assuming that synergy is estimated at $5.2 million and that $2 million of it is from cost savings expected in Year 1 due to the elimination of duplicate services, what must the remaining annual synergies be for the next 9 years to achieve the total expected synergies?
c. Based on the $50 million merged firm value, what is the maximum Mistral could pay for Amsted's shares in cash?
d. How much synergy will shareholders of Mistral and Amsted receive if a cash offering is made by Mistral to Amsted for (i) $23, (ii) $25, and (iii) $30 per share?