Birclie Golf, Inc., has been in merger talks with Hybrid Golf Bryce Bichon, the financial officer for Birdic, hes been Company for the past six months. After several rounds of instrumental in the merger negotiations. Bryce has preparred negotiations, the offer under discussion is a cash offer of \$155 the following pro forms financial statements for Hybrid Golt million for Hybrid Golf. Both companies have niche markets assuming the merger takes place. The financial statements in the golf club industry, and both believe that a merger will include all synergistic benefits from the merget. result in synergies due to economies of scale in manufacturing and marketing, as well as significant savings in general and administrative expenses. Chapter 26 Mergers and Acpu:itions 899 If Birdie Golf buys Hybrid Golf, an immediate dividend of QUESTIONS $45 million would be paid from Hybrid Golf to Birdie. Stock in 1. Suppose Hybrid shareholders winl agree to a merget Birdie Golf currently sells for $71 per share, and the company price of $24.22 per share. Stould Birdie proceed with the has 14 million shares of stock outstanding. Hybrid Golf has What is the highest price per share that Birchie should be borrow at an 8 percent interest rate. Bryce believes the curtent willing to pay for Hybrid? cost of capital for Birdie Golf is 11 percent. The cost of capital 3. Suppose Birdie is unwilling to pay cash for the merger buit. for Hybrid Golf is 12.4 percent, and the cost of equity is 16.9 will consider a stock exchange. What exchange ratio would percent. In five years, the value of Hybrid Golf is expected to make the merger terms equivalent to the original merger be $190 million. Bryce has asked you to analyze the financial aspects of the price of $24.22 per share? What is the highest exchange ratio Birclie shoald be willitns potential merger. Specifically, he has asked you to answer the 4. What is the highest exchange ratio Biruties to pay and still undertake the merger? following questions