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BAD Company's stock price is $30, and it has 10.0 million shares outstanding. You believe that if you buy the company and replace its management,
BAD Company's stock price is $30, and it has 10.0 million shares outstanding. You believe that if you buy the company and replace its management, its value will increase by 43%. Assume that BAD has a poison pill with a 15% trigger. If triggered, all target shareholders - other than the acquirer-will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price remains at $30 while you are acquiring your shares. If BAD's management decides to resist your buyout attempt, and you cross the 15% threshold of ownership: a. How many new shares will be issued and at what price? b. What will happen to your percentage ownership of BAD? c. What will happen to the price of your shares of BAD? d. Do you lose or gain from triggering the poison pill? If you lose, where does the loss go (who benefits)? If you gain, where does the gain come from (who loses)
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