The Hollings Corporation is considering a two-step buyout of the Norton Corporation. The latter firm has 2.7 million shares outstanding and its stock price is currently $40 per share. In the two-step buyout, Hollings will offer to buy 51 percent of Nortons shares outstanding for $63 per share in cash and the balance in a second offer of 970,000 convertible preferred stock shares. Each share of preferred stock would be valued at 45 percent over the current value of Nortons common stock. Mr. Green, a newcomer to the management team at Hollings, suggests that only one offer for all Nortons shares be made at $52.25 per share.

a. Calculate the total costs of the two alternatives. (Do not round intermediate calculations. Enter your answers in dollars, not millions (e.g., $123,456,000).)

Two Step Offer

Single Offer

b. Which is better in terms of minimizing costs? multiple choice

Single offer

Two step offer