NETO is a public firm that specializes in advanced irrigation techniques. Current shareholders receive an acquisition offer from TAXO which has a market cap of $2B as compared to NETO market cap of $1B. For simplicity assume there are no synergies so the merged firm value will be $3B. Based on historical data we estimate the market return next year to be 10% with a standard deviation of 15%. The risk-free rate is 2%. We assume that the CAPM holds.

TAXO's offer to NETO shareholders is for 35% of the merged firm. NETO owners will not be able to sell shares of the merged firm for one year. They will also not be allowed trade derivatives on TAXO. What would be your recommendation to NETO shareholders?

(If NETO shareholders decline the offer they face no constraints in their investment strategy. For simplicity assume that their position in the merged firm represents their entire portfolio and that they are mean-variance investors with a horizon of one year)