Merger announcement date: January 7, 2000. Stand-Alone Firms Number of shares Ma
ID: 2724989 • Letter: M
Question
Merger announcement date: January 7, 2000. Stand-Alone Firms Number of shares Market Cap Premerger Share Price (in billions) (in billions) AOL 72.88 x 2.6 = $189.5 TWX 64.75 x 1.4 = 90.7 Total $280.2 Combined AOL-TWX New AOL shares for TWX stockholders = Exchange ratio x TWX shares = 1.5 x 1.4 billion = 2.1 billion Number of shares Market Cap Premerger Share Price (in billions) (in billions) “TWX” 72.88 x 2.1 = $153.1 AOL 72.88 x 2.6 = 189.5 Total 4.7 $342.6 What was the premium paid by AOL for TWX?
Explanation / Answer
Premium Paid by AOL for TWX is equal to the difference betweeen Post Merger Market Cap and Pre Merger market Capt
Premium = $153.1 Bn-90.70 Bn
=462.4 Bn