Cash offer $155,000,000 Cash Flows Acquistion of Hybrid Dividends from Hybnd Teminal value of company Total \begin{tabular}{|l|l|l|l|l|l|} \hline \multicolumn{1}{|l|}{ Yeare Yeart } & Year? & Year. & Year. 5 \\ \hline & & & & \\ \hline \end{tabular} Prenent valuea Abquaition of Hybid Oividends trom Hytnd Temmal value of company Total 1) NPV 2) Highest price to otter Price per share otfered Highest share price to offer 3) New share proe 8inde is wiling to consider a sock exchange. What exchange ratio is equivalent to a cash purchase price of \$24. 22 ishare? Exchange ratio 4) Highest exchange reto THE BIRDIE GOLF-HYBRID GOLF MERGER Birdie Golf, Inc., has been in merger talks with Hybrid Golf Bryce Bichon, the financial officer for Birdie, has been Company for the past six months. After several rounds of instrumental in the merger negotiations. Bryce has prepared negotiations, the offer under discussion is a cash offer of $155 the following pro forma financial statements for Hybrid Golf 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 merger. result in synergies due to economies of scale in manufacturing and marketing, as well as significant savings in general and administrative expenses. 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 will agree to a merger Birdie Golf currently sells for $71 per share, and the company price of $24.22 per share. Should Birdie proceed with the has 14 million shares of stock outstanding. Hybrid Golf has merger? 6.4 million shares of stock outstanding. Both companies can 2. What is the highest price per share that Birdie should be borrow at an 8 percent interest rate. Bryce believes the current willing to pay for Hybrid? cost of capital for Birdie Golf is 11 percent. The cost of capital for Hybrid Golf is 12.4 percent, and the cost of equity is 16.9 3. Suppose Birdie is unwilling to pay cash for the merger but percent. In five years, the value of Hybrid Golf is expected to will consider a stock exchange. What exchange ratio would be $190 million. make the merger terms equivalent to the original merger Bryce has asked you to analyze the financial aspects of the price of $24.22 per share? potential merger. Specifically, he has asked you to answer the 4. What is the highest exchange ratio Birdie should be willing following questions. to pay and still undertake the merger? Cash offer $155,000,000 Cash Flows Acquistion of Hybrid Dividends from Hybnd Teminal value of company Total \begin{tabular}{|l|l|l|l|l|l|} \hline \multicolumn{1}{|l|}{ Yeare Yeart } & Year? & Year. & Year. 5 \\ \hline & & & & \\ \hline \end{tabular} Prenent valuea Abquaition of Hybid Oividends trom Hytnd Temmal value of company Total 1) NPV 2) Highest price to otter Price per share otfered Highest share price to offer 3) New share proe 8inde is wiling to consider a sock exchange. What exchange ratio is equivalent to a cash purchase price of \$24. 22 ishare? Exchange ratio 4) Highest exchange reto THE BIRDIE GOLF-HYBRID GOLF MERGER Birdie Golf, Inc., has been in merger talks with Hybrid Golf Bryce Bichon, the financial officer for Birdie, has been Company for the past six months. After several rounds of instrumental in the merger negotiations. Bryce has prepared negotiations, the offer under discussion is a cash offer of $155 the following pro forma financial statements for Hybrid Golf 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 merger. result in synergies due to economies of scale in manufacturing and marketing, as well as significant savings in general and administrative expenses. 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 will agree to a merger Birdie Golf currently sells for $71 per share, and the company price of $24.22 per share. Should Birdie proceed with the has 14 million shares of stock outstanding. Hybrid Golf has merger? 6.4 million shares of stock outstanding. Both companies can 2. What is the highest price per share that Birdie should be borrow at an 8 percent interest rate. Bryce believes the current willing to pay for Hybrid? cost of capital for Birdie Golf is 11 percent. The cost of capital for Hybrid Golf is 12.4 percent, and the cost of equity is 16.9 3. Suppose Birdie is unwilling to pay cash for the merger but percent. In five years, the value of Hybrid Golf is expected to will consider a stock exchange. What exchange ratio would be $190 million. make the merger terms equivalent to the original merger Bryce has asked you to analyze the financial aspects of the price of $24.22 per share? potential merger. Specifically, he has asked you to answer the 4. What is the highest exchange ratio Birdie should be willing following questions. to pay and still undertake the merger