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Allied is planning on merging with Broadwing. Allied currently has 60,000 shares of stock outstanding at a market price of $52 a share. Broadwing has
Allied is planning on merging with Broadwing. Allied currently has 60,000 shares of stock outstanding at a market price of $52 a share. Broadwing has 50,000 shares outstanding at a price of $30 a share. The merger will create $350,000 of synergy. How many of its shares should Allied offer in exchange for all of Broadwing's share if it wants its acquisition cost of Broadwing to be $1,725,000? Please show your work. (Hint: Merged firm value = Value of Allied + Value of Broadwing + Synergy. Given the acquisition cost, determine the % ownership of Broadwing shareholders in the merged firm. The % ownership also indicate the proportion of the total shares of the merged firm held by Broadwing shareholders where the total shares of the merged firm = premerger number of shares of Allied + number of new shares of Allied issued to Broadwing)
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