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ABChas1millionsharesoutstanding,eachofwhichhasapriceof$20.IthasmadeatakeoverofferofXYZCorporationwhichhas1millionsharesoutstandingandapricepershareof$2.50.Assumethatthetakeoverwilloccurwithcertaintyandallmarketparticipantsknowthis.Furthermore,therearenosynergiestomergingthetwofirms. AssumeABCmadeacashoffertopurchaseXYZfor$3million.WhathappenstothepriceofABCandXYZontheannouncement?Whatpremiumoverthecurrentmarketpricedoesthisofferrepresent?(0.5points) AssumeABCmakesastockofferwithanexchangeratioof0.15.WhathappenstothepriceofABCandXYZthistime?Whatpremiumoverthecurrentmarketpricedoesthisofferrepresent?(0.5points) At current market prices, both offers are offers to purchase XYZ for $3 million. Does that mean that your answers to parts

  1. ABChas1millionsharesoutstanding,eachofwhichhasapriceof$20.IthasmadeatakeoverofferofXYZCorporationwhichhas1millionsharesoutstandingandapricepershareof$2.50.Assumethatthetakeoverwilloccurwithcertaintyandallmarketparticipantsknowthis.Furthermore,therearenosynergiestomergingthetwofirms.
    2. AssumeABCmadeacashoffertopurchaseXYZfor$3million.WhathappenstothepriceofABCandXYZontheannouncement?Whatpremiumoverthecurrentmarketpricedoesthisofferrepresent?(0.5points)
  2. AssumeABCmakesastockofferwithanexchangeratioof0.15.WhathappenstothepriceofABCandXYZthistime?Whatpremiumoverthecurrentmarketpricedoesthisofferrepresent?(0.5points)
  3. At current market prices, both offers are offers to purchase XYZ for $3 million. Does that mean that your answers to parts (a) and (b) must be identical? Explain. (0.5 points)

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