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 | 5,200 | 1,800 | ||||
| Price per share | $ | 43 | $ | 18 | ||
| Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,100. Firm T can be acquired for $20 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? |
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Forecasting Principles And Practice
Authors: Rob J Hyndman, George Athanasopoulos
3rd Edition
0987507133, 978-0987507136
