1. 13.

Merger NPV [LO 26.3] Harrods PLC has a market value of £95 million and 4.5 million shares outstanding. Selfridges Department Store has a market value of £32 million and 1.8 million shares outstanding. Harrods is contemplating acquiring Selfridges. Harrods’

CFO concludes that the combined firm with synergy will be worth

£145 million, and Selfridges can be acquired at a premium of £3.3 million.

1. If Harrods offers 1.1 million of its shares in exchange for the 1.8 million shares of Selfridges, what will the share price of Harrods be after the acquisition?

2. What exchange ratio between the two shares would make the value of a share offer equivalent to a cash offer of £35.3 million?