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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 share. |
| a. | Are the shareholders of Firm T better off with the cash offer or the stock offer? |
| b. | 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.) |
a. Shareholders of Firm T?
b. Exchange Ratio? __ to 1
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