Question
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. |
Firm B | Firm T | |||||
Shares outstanding | 6,600 | 2,500 | ||||
Price per share | $ | 47 | $ | 21 | ||
Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,900. Firm T can be acquired for $23 per share in cash or by exchange of stock wherein B offers one of its share for every two of T's shares. |
Are the shareholders of Firm T better off with the cash offer or the stock offer? | ||||
|
At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) |
Exchange ratio |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started