Question
Mergers and Acquisitions. BAD Companys stock price is $20, and the firm has 2 million shares outstanding. You believe you can increase the companys value
Mergers and Acquisitions.
BAD Companys stock price is $20, and the firm has 2 million shares outstanding. You believe you can increase the companys value if you buy it and replace the management. Assume that BAD has a poison pill with a 20% trigger. If it is triggered, all BADs shareholdersother than the acquirerwill be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price remains at $20 while you are acquiring your shares. If BADs management decides to resist your buyout attempt, and you cross the 20% threshold of ownership:
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How many new shares will be issued and at what price?
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What will happen to your percentage ownership of BAD?
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What will happen to the price of your shares of BAD?
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Do you lose or gain from triggering the poison pill? If you lose, where does the loss go (who benefits)? If you gain, from where does the gain come (who loses)?
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