You work for a leveraged buyout firm and are evaluating a potential buyout of UnderWater Company. UnderWater’s stock price is \($25,\) and it has 2 million shares outstanding. You believe that if you buy the company and replace its management, its value will increase by 35%. You are planning on doing a leveraged buyout of UnderWater and will offer \($31.25\) per share for control of the company.

a. Assuming you get 50% control, what will happen to the price of non-tendered shares?

b. Answered in part (a), will shareholders tender their shares, not tender their shares, or be indifferent?

c. What will your gain from the transaction be?