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ABC has 1 . 0 0 million shares outstanding, each of which has a price of $ 1 8 . It has made a takeover
ABC has million shares outstanding, each of which has a price of $ It has made a takeover offer of XYZ Corporation, which has million shares outstanding, and a price per share of $ Assume that the takeover will occur with certainty and all market participants know this. Furthermore, there are no synergies to merging the two firms.
a Assume ABC made a cash offer to purchase XYZ for $ million. What happens to the price of ABC and XYZ on the announcement? What premium over the current market price does this offer represent?
b Assume ABC makes a stock offer with an exchange ratio of What happens to the price of ABC and XYZ this time? What premium over the current market price does this offer represent?
c At current market prices, both offers are offers to purchase XYZ for $ million. Does that mean that your answers to parts a and b must be identical? Explain.
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