You work for a leveraged buyout firm and are evaluating a potential buyout of the Underwater company Underwater's stock price is $25 and it has 1.7 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 $31.25 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 or be indifferent?

c. What will you gain from the transaction be?