Question 4

The firm T, as a standalone business, has asset = $105,008,000, debt = $3,040,000, total number of shares NT = 3,565,315. An eminent entrepreneur A, along with an investment bank, estimate that a potential value of U = $42,003,200 can be unlocked after a takeover of T that will replace the current management of T and implement innovative ways to operate the business of T. The investment bank is hired to assist the takeover which costs F = $3,360,256 to the entrepreneur. The entrepreneur A already owns 12% of the shares of T through anonymous trading in the stock market.

1) If the entrepreneur A plans to pay $32.50 per share to buy all the remaining shares of T, how much cash does the acquiring entrepreneur A need?

2) With the offer price $32.50 per share, what would be the percentage change in the equity value of Ts shareholders excluding the acquiring entrepreneur, following the takeover?

3) If shareholders of T require rather a 18% premium, but entrepreneur As offer price remains at $32.50, how large at least must the potential value U be for the acquiring entrepreneur A to realize a profitable takeover?