Sweet Cola Corp. $($SCC$)$ is bidding to take over Salty Dog Pretzels $($SDP$).$ SCC has $3,000,000$ shares

outstanding, selling at $$50$ per share. SDP has $2,000,000$ shares outstanding, selling at $$17\mathrm{.}50$ per share.

This merger is expected to create an incremental after$-$tax cash flow of $$1,500,000$ on a perpetual basis

due to economies of scale achieved. These two companies have the same risk in their cash flows, and

the cost of capital of SCC is $15\%.$

a$)$ Calculate the synergy of the merger.

b$)$ If SDP can be acquired for $$20$ a share, calculate NPV of the acquisition for SCC$.$

c$)$ What will SCC sell for when the market knows that SCC plans to buy SDP $$20$ per share? What

will SDP sell for? What are the percentage gains to the shareholders of each firm? Hint: Consider

per share gain for both companies' shareholders.

d$)$ What is the maximum price or break$-$even price SCC should offer to SDP shareholders?

e$)$ Now suppose the merger takes place through an exchange of stocks based on premerger value

SCC and the deal price. What will be price of the merged firm? What is the NPV$?$ Why it is lower

now?

f$)$ Which method cash or stock exchange is better for the acquiring firm?

g$)$ Briefly explain two pre$-$offer and two post$-$offer tactics to prevent hostile takeover.