Assume you are one of the 1 million shareholders of Highlife Corporation, all of whom own 1 share of stock. Highlife has no debt. Its chief executive is not doing a good job, preferring to spend his time using the company’s jet to fly to the ski resorts of the Pyrenees, rather than running the company in London. As such, the shares are trading at a substantial discount. They currently have a price of $45 per share, giving Highlife a market value of$45 million. Under a competent manager, the company would be worth $75million. Highlife’s corporate charter specifies that a simple majority is required to make all decisions, so to take control, a shareholder must purchase half the outstanding shares.

a. Free-rider problem. Stanley decides to fix the situation (and make a profit at the same time) by making a conditional (restricted) tender offer to buy half of the outstanding shares for $60 apiece in cash.

i. How much would Stanley get if the offer is successful?

ii. How much do you, as one of the shareholders, get if you tender and if you do not? Would you tender? Would the tender be successful? Is it efficient?