A public acquiror is seeking to acquire a smaller competitor using 100% stock. The proposed acquisition price for the target's stock is $12.50 per share and the trading price of the acquiror's stock is currently $38.25 per share. The target believes that the market will view the transaction favorably and wants its shareholders to be able to ride up any appreciation in the acquiror's stock. The acquiror, however, is worried about giving away too much of the incremental value to the target's shareholders.

Under the circumstances, what is the best structure for the acquiror to propose in terms of meeting both parties' objectives?

A.A fixed exchange ratio of .327 shares for each target share

B. A variable exchange ratio exchange ratio starting at .327 shares for each target share which declines proportionately as the acquiror's stock increases

C. A variable exchange ratio starting at .327 shares for each target share which declines proportionately until the acquiror's stock reaches $45.00, at which point the exchange ratio becomes fixed at .278:1

D.A fixed exchange ratio of .327 shares for each target share until the acquiror's stock reaches $45.00, at which point the exchange ratio starts declining proportionately

E. fixed exchange ratio of 3.06 shares for each target share