Large plc is considering the takeover of Small plc. Large is currently valued at 60m on the stock market while Small is valued at 30m. The economies of scale and other benefits of the merger are expected to produce a market value for the combined firm of 110m. A bid premium of 20m is expected to be needed to secure Small. Transaction costs (advisers fees, etc.) are estimated at 3m. Large has 30 million shares in issue and Small has 45 million. Assume the managers are shareholder-wealth maximizers.

(a) Does this merger create value for Large plc? (b) If the purchase is made with cash, what will be the price offered for each of Smalls shares? (c) What would be the value of each of Larges shares after this merger?