11.

a. In November 2000, Weyerhaeuser, a forest products company based in Federal Way, Washington, announced a hostile bid of $48 for Willamette Industries, a smaller company based in Portland, Oregon. Despite the fact that the bid represented a substantial premium to the firms pre-bid stock price, the Willamette board rejected the offer and urged its shareholders not to tender their shares to Weyerhaeuser.

Willamettes defenses included a staggered board and a poison pill. Explain how the two defensive strategies would help Willamette resist this unwanted takeover. (4 marks)

b. Ford Motor Company has earnings per share of $1.7. It has 10 million shares outstanding and is trading at $20 per share. Ford Motor Company is thinking of buying The Goodyear Tire & Rubber Company, which has earnings per share of $1.3, a price per share of $15, and 3.2 million shares outstanding. Ford Motor Company will pay for The Goodyear Tire & Rubber Company by issuing new shares. There are no expected synergies from the transaction.

Suppose that Ford Motor Company pays no premium to buy The Goodyear Tire & Rubber Company.

Calculate the earnings per share of Ford Motor Company after the takeover. (6 marks)