You work for a leveraged buyout firm and are evaluating a potential buyout of UnderWater Company.UnderWater's stock price is $15 and it has 2.25 million shares outstanding.You believe that if you buy the company and replace itsmanagement, its value will increase by 38%. You are planning on doing a leveraged buyout of UnderWater and will offer $18.75 per share for control of the company.

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

b. Given the answer in part (a), will shareholders tender theirshares, not tender theirshares, or beindifferent?

c. What will your gain from the transactionbe?