Charger Incorporated and Sparks Electrical Company are competitors in the business of electrical components distribution. Sparks is the smaller firm and has garnered the attention of the management of Charger, as Sparks has taken away market share from the larger firm by increasing its sales force over the past few years. Charger is considering a takeover offer for Sparks and has asked you to serve on the acquisition valuation team that will turn into the due diligence team if an offer is made and accepted. Given the following information and assumptions: Sparks Electrical Company Condensed Balance Sheet Previous Year (2009) ($ in millions) Current assets Fixed assets Total assets $ 12.2 347.8 $360.0 Current liabilities Long-term debt Total liabilities Shareholders' equity Total liabilities and equity $ 10.1 150.0 $160.1 199.9 $360.0 Sparks Electrical Company Condensed Income Statement Previous Five Years ($ in millions) 2008 2007 2006 2005 $1,614.1 $1.485.2 $1,380.5 $1,373.4 1.490.9 1,359.5 1,271.4 1.268.0 $ 23.2 $ 125.7 $ 109.1 $ 105.4 Revenues Less: Cost of goods sold Gross profit 2009 $1,626.5 1.488.1 $ 138.4 $ 41.1 $36.8 $ 41.2 $ 35 $36.1 Selling, general & administrative expenses (SG&A) Noncash expense (depreciation & amortization) Less: Operating expense 7.3 $ 48.4 6.7 $ 43.5 7.1 $ 48.3 6.6 $ 41.6 6.4 $ 42.5 Operating profit (EBIT) Less: Interest expense Earnings before taxes (EBT) Less: Taxes paid Net income $ 90.0 11.5 $ 78.5 24.3 $ 54.2 $ 79.7 12.0 $ 67.7 20.8 $ 46.2 $ 77.4 12.0 $ 65.4 19.9 $ 45.5 $ 67.5 12.0 $ 55.5 16.8 $ 38.7 $ 62.9 12.0 $ 50.9 15.3 $ 35.6 Assumptions: Sparks would become a wholly owned subsidiary of Charger. Revenues will continue to grow at 4.3 percent for the next five years and will level off at 4 percent thereafter. Cost of goods sold will represent 95 percent of revenue going forward. Sales force layoffs will reduce SG&A expenses to $22 million next year with a 2 percent growth rate going forward. These layoffs and other restructuring charges are expected to result in expensed restructuring charges of $30 million, $15 million, and $5 million, respectively, over the next three years. Noncash expenses are expected to remain around $7 million going forward. Interest expenses are expected to remain around $11.5 million going forward. A tax rate of 31 percent is assumed going forward. Charger's cost of equity is 12 percent. Sparks's current market capitalization is $250 million with 10 million shares outstanding. Charger will offer Sparks a takeover premium of 20 percent over current market capitalization. . a. If Charger has 30 million shares outstanding that are currently trading at $60.00, then how many shares should Charger offer for all shares of Sparks? Assume that the synergy created is $100 million and Charger will offer Sparks a takeover premium of 20 percent over current market capitalization, which is $250 million. Charger Incorporated and Sparks Electrical Company are competitors in the business of electrical components distribution. Sparks is the smaller firm and has garnered the attention of the management of Charger, as Sparks has taken away market share from the larger firm by increasing its sales force over the past few years. Charger is considering a takeover offer for Sparks and has asked you to serve on the acquisition valuation team that will turn into the due diligence team if an offer is made and accepted. Given the following information and assumptions: Sparks Electrical Company Condensed Balance Sheet Previous Year (2009) ($ in millions) Current assets Fixed assets Total assets $ 12.2 347.8 $360.0 Current liabilities Long-term debt Total liabilities Shareholders' equity Total liabilities and equity $ 10.1 150.0 $160.1 199.9 $360.0 Sparks Electrical Company Condensed Income Statement Previous Five Years ($ in millions) 2008 2007 2006 2005 $1,614.1 $1.485.2 $1,380.5 $1,373.4 1.490.9 1,359.5 1,271.4 1.268.0 $ 23.2 $ 125.7 $ 109.1 $ 105.4 Revenues Less: Cost of goods sold Gross profit 2009 $1,626.5 1.488.1 $ 138.4 $ 41.1 $36.8 $ 41.2 $ 35 $36.1 Selling, general & administrative expenses (SG&A) Noncash expense (depreciation & amortization) Less: Operating expense 7.3 $ 48.4 6.7 $ 43.5 7.1 $ 48.3 6.6 $ 41.6 6.4 $ 42.5 Operating profit (EBIT) Less: Interest expense Earnings before taxes (EBT) Less: Taxes paid Net income $ 90.0 11.5 $ 78.5 24.3 $ 54.2 $ 79.7 12.0 $ 67.7 20.8 $ 46.2 $ 77.4 12.0 $ 65.4 19.9 $ 45.5 $ 67.5 12.0 $ 55.5 16.8 $ 38.7 $ 62.9 12.0 $ 50.9 15.3 $ 35.6 Assumptions: Sparks would become a wholly owned subsidiary of Charger. Revenues will continue to grow at 4.3 percent for the next five years and will level off at 4 percent thereafter. Cost of goods sold will represent 95 percent of revenue going forward. Sales force layoffs will reduce SG&A expenses to $22 million next year with a 2 percent growth rate going forward. These layoffs and other restructuring charges are expected to result in expensed restructuring charges of $30 million, $15 million, and $5 million, respectively, over the next three years. Noncash expenses are expected to remain around $7 million going forward. Interest expenses are expected to remain around $11.5 million going forward. A tax rate of 31 percent is assumed going forward. Charger's cost of equity is 12 percent. Sparks's current market capitalization is $250 million with 10 million shares outstanding. Charger will offer Sparks a takeover premium of 20 percent over current market capitalization. . a. If Charger has 30 million shares outstanding that are currently trading at $60.00, then how many shares should Charger offer for all shares of Sparks? Assume that the synergy created is $100 million and Charger will offer Sparks a takeover premium of 20 percent over current market capitalization, which is $250 million