Question
Harrys Department Store, Inc. has a market value of $600 million and has 30 million shares outstanding. Kay Discount Outlet has a market value of
Harrys Department Store, Inc. has a market value of $600 million and has 30 million shares outstanding. Kay Discount Outlet has a market value of $200 million and 20 million shares outstanding. Harrys is thinking about acquiring Kay. Harrys CFO concludes that the combined firm with synergy will be worth $1 billion, and Kay can be acquired at a premium of $100 million.
- If Harrys offers 15 million shares of its stock in exchange for the 20 million shares of Kay, what will the stock price of Harrys be after the acquisition?
- What exchange ratio between the two stocks would make the value of stock offer equivalent to a cash offer of $300 million?
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Fundamentals of Financial Management
Authors: Eugene F. Brigham
Concise 9th Edition
1305635937, 1305635930, 978-1305635937
