Question
LeftShoe Corp. has 10 million shares outstanding, each trading at $20 per share. RightShoe Corp. has 5 million shares outstanding, each trading at $40 per
LeftShoe Corp. has 10 million shares outstanding, each trading at $20 per share. RightShoe Corp. has 5 million shares outstanding, each trading at $40 per share. LeftShoe wants to acquire RightShoe. The acquisition will result in net synergies of $100 million. Assume that the pre-merger share prices reflect standalone values (that is, investors didnt anticipate acquisition). Suppose LeftShoe announces a stock offer to acquire Right- Shoe by issuing new shares at an exchange ratio that represents a 30% premium based on pre-merger prices. What is the NPV of the transaction to LeftShoe and what is the NPV of the transaction to RightShoe? What are the two share prices immediately after the announcement?
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