Sweet Cola Corp. (SCC) is bidding to take over Salty Dog Pretzels (SDP). SCC has 3,000 shares outstanding, selling at $50 per share. SDP has 2,000 shares outstanding, selling at $17.50 per share. SCC estimates the synergies from the merger to be $10,000. A. If SDP can be acquired for $20 cash per share, what is the NPV of the merger to SCC? B. The market is semi-strong efficient. What will SCC sell for when the market learns that it plans to acquire SDP for $20 a share? What will SDP sell for? What is the percentage gain per share for each firm? What fraction of the merger synergies do SCC's shareholders receive? What fraction goes to SDP's shareholders? C. Now suppose that the merger takes place through an exchange of stock instead. Based on the pre- merger prices of the firms, SCC issues 0.4 of its shares for every SDP share. What will be the share price of the merged firm? D. What is the NPV of the merger to SCC when it sues an exchange of stock? What is the percentage gain per share for each firm? What fraction of the economic gain do SCC's shareholder receive? E. Would the shareholders of SCC prefer the cash transaction or the share exchange? Why? What about the shareholders of SDP? F. Calculate the share exchange equivalent to the cash offer in part (A) Sweet Cola Corp. (SCC) is bidding to take over Salty Dog Pretzels (SDP). SCC has 3,000 shares outstanding, selling at $50 per share. SDP has 2,000 shares outstanding, selling at $17.50 per share. SCC estimates the synergies from the merger to be $10,000. A. If SDP can be acquired for $20 cash per share, what is the NPV of the merger to SCC? B. The market is semi-strong efficient. What will SCC sell for when the market learns that it plans to acquire SDP for $20 a share? What will SDP sell for? What is the percentage gain per share for each firm? What fraction of the merger synergies do SCC's shareholders receive? What fraction goes to SDP's shareholders? C. Now suppose that the merger takes place through an exchange of stock instead. Based on the pre- merger prices of the firms, SCC issues 0.4 of its shares for every SDP share. What will be the share price of the merged firm? D. What is the NPV of the merger to SCC when it sues an exchange of stock? What is the percentage gain per share for each firm? What fraction of the economic gain do SCC's shareholder receive? E. Would the shareholders of SCC prefer the cash transaction or the share exchange? Why? What about the shareholders of SDP? F. Calculate the share exchange equivalent to the cash offer in part (A)
