Anderson and Forever Green (FG) have agreed to combine by a merger of share-for-share exchange. Suppose there is no debt for either firm and no transaction costs are involved in the merger process. The market value of Anderson is $200M, and that of FG is $300M. In addition, the merger cannot generate synergistic effects.

a, If the merger can be implemented successfully, what would be the maximum value of the combined firm? (5 marks)

b. In case of no merger, the annual return of Andersons shares and FGs shares would grow at 15% and 30%, respectively. In addition, two other shares on the market would exist, which are perfect substitutes for Anderson and FG. If the market is efficient, calculate the annual expected return of the merged firms share. (5 marks)

c .Assume that investors can earn 22% annually by holding the merged firms share. Identify whether there are any arbitrage opportunities. Elaborate on the procedure to conduct the arbitrage and calculate the arbitrage profit. (10 marks)

d. In addition to the original merger plan, the CFO of FG also proposes another option. In this option, FG agrees to pay a bid premium of $100M to Anderson if the merger is believed to generate synergistic effects via economics of scale. The market value of the combined firm after the merger is $600M, but FG has to bear transaction costs of $10M. The outstanding shares for FG and Anderson are 10 million and 5 million, respectively. Compute the lowest price of tender offered by FG for Andersons shares. (10 marks)

e. It is usually remarked that many mergers appear lucrative before the transaction but later turn into failures. As a newly appointed manager in the merged firm, Wilson wonders whether this is the case. Critically discuss how you would address his concern. (5 marks)

f. After the merger deal is completed, the expected synergy cannot be obtained. Instead, the merged firm faces many difficulties. Wilson has to use corporate restructuring to solve this problem. Identify five primary sources of creating value through corporate restructuring. Explain briefly. (5 marks)