Subject - Investments

Reference Book - Investments BKM

Cash versus Stock offer

Adept Inc. is looking to acquire Tan Corp. The following shows details of each companys issued company before the acquisition/merger.

	Adept Inc(A)	Tan Corp(T)
Price per share	$50	$15
Total earnings	$7,440,000	$3,780,000
Shares outstanding	1,240,000	1,800,000
Total value	$62,000,000	$27,000,000

Adept (A) is considering a cash offer to Tan Corps shareholders of $20 per share. If this occurs, Adapt expects the value of its shares post after the merger to be $52 each.

a) Calculate the expected NPV of the merger.

b) Base on the above, calculate the expected synergies from the acquisition.

c) Now suppose that Adept Inc. is considering a stock swap instead of the $20 per share cash offer. Calculate the exchange ratio that would result in Adepts shareholders being equally well-off. (i.e how many shares in Adept would need to be offered for each share in Tan Corp to achieve the same NPV as the cash offer)