You work for a leveraged buyout firm and are evaluating a potential buyout of UnderWater Company. UnderWater's stock price is

$17

and it has

2.25

million shares outstanding. You believe that if you buy the company and replace its management, its value will increase by

45%.

You are planning on doing a leveraged buyout of UnderWater and will offer

$21.25

per share for control of the company.

a. Assuming you get 50% control, what will happen to the price of non-tendered shares?

b. Given the answer in part (a), will shareholders tender their shares, not tender their shares, or be indifferent?

c. What will your gain from the transaction be?