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Harrods PLC has a market value of 85 million and 4.5 million shares outstanding. Selfridge Department Store

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Harrods PLC has a market value of £85 million and 4.5 million shares outstanding. Selfridge Department Store has a market value of £30 million and 1.8 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods’s CFO concludes that the combined firm with synergy will be worth £130 million, and Selfridge can be acquired at a premium of £3.1 million.

a. If Harrods offers 900,000 shares of its stock in exchange for the 1.8 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 a stock offer equivalent to a cash offer of £33.1 million?

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