Merger announcement date: January 7, 2000 Stand-Alone Firms Number of shares Mar
ID: 2724991 • 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 Postmerger Share Price (in billions) (in billions) “TWX” 72.88 x 2.1 = $153.1 AOL 72.88 x 2.6 = 189.5 Total 4.7billion shares, Total $342.6 billion. What was the premium paid by AOL for TWX?
Explanation / Answer
THE PREMIUM PAID BY AOL FOR TWX =VALUE IN AOL THAT TWX SHARE HOLDERS WILL GET REDUCED BY PRE MERGER MARKET CAPITALISATION OF TWX.
= 153.1-90.7
=62.4