4.7 Transnational Corporation of Nigeria. During the 1960s, many conglomerates were created by firms that were...

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4.7 Transnational Corporation of Nigeria. During the 1960s, many conglomerates were created by firms that were enjoying a high price/earnings ratio (P/E). These firms then used their highly valued stock to acquire other firms that had lower P/E ratios, usually in unre- lated domestic industries. Conglomerates went out of fashion during the 1980s when their P/E ratios signifi- cantly declined, thus making it more difficult to find other firms with lower P/E ratios to acquire. During the 1990s, the same acquisition strategy was possible for firms located in countries where high P/E ratios were common compared to firms in other countries where low P/E ratios were common. Consider the two hypothetical firms shown in the following table: Transnational Corporation of Nigeria wants to acquire Julius Berger Nigeria Plc. It offers 7,500,000 shares of Transnational Corporation of Nigeria, with a current market value of 300,000,000 and a 12% premium on Julius Berger Nigeria Plc's shares, for all of Julius Berger's shares.