On January 10, 2000 AOL announced the acquisition of Time Warner (TWX), in which 1.5 shares of AOL were exchanged for 1 share of TWX. The table below describes the pre-merger values:

Share Price Number of Shares Market Capitalization(pre-merger)

AOL $72.88 2.6 Billion $189.50 Billion

TWX $64.75 1.4 Billion $90.70 Billion

a) What percentage of the merged company (AOLTWX) was held by existing shareholders of AOL and TWX after the transaction, respectively?

b) Name at least two reasons AOL might want to acquire Time Warner?

c) Assume that there are no synergies between the two firms. What was the premium (in %) that TWX shareholders received? How much would AOL have to pay for TWX in cash such that shareholders of TWX would be indifferent between a share or cash acquisition?