Assets $23.6 million	Debt $5 million
	Equity $18.6 million

Assets $8.5 million	Debt $4.5 million
	Equity $4 million

Alpha Tech (pre-deal) Beta Corp

Alpha Tech closing price: $155 Beta Corp closing price: $100 Shares outstanding: 120,000 Shares outstanding: 40,000

Alpha wants to increase its market share, so it is considering acquiring Beta. Supposed that Alpha Tech plans to announce its acquisition plans next week. The CFO has the weekend to figure out how to finance the acquisition and present the proposal to the board of directors of both companies. Analyze the three scenarios below:

A 20% cash and 80% stock deal for a target price of $125. New debt and equity will be issued to finance the cash and equity portions, respectively. Calculate the following:

1. What is the exchange ratio? (2 pts)
2. If you were a Beta shareholder and owned 30 shares, how many shares of Alpha will you receive and how much will you receive in cash? (2 pts)
3. How many shares will Alpha have to issue in order to finance this deal? (2 pts)
4. Calculate Alphas leverage ratio after acquiring Beta. Keep in mind that Alpha issued both new equity and new debt to finance this deal. (2 pts)
5. Beta will now own shares of Alpha. What percentage of ownership will Beta have over Alpha? (2 pts)
6. Which of the three deal structures would you recommend? Keep in mind the following considerations (2 pts):

• Alphas CEO feels comfortable giving up ownership of the company, but she wants to avoid a large deterioration of Alphas leverage ratio since she plans to borrow more debt in the future.
• Gamma Inc, one Alphas competitors, has approached Beta offering an all-stock deal. But Betas CEO wants to reduce some of the risk that Gammas all-stock deal represents for Betas shareholders.