Merger announcement date: January 7, 2000 Stand-Alone Firms Number of shares Mar
ID: 2725090 • 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.The value of AOL on September 10, 2002, was $13.36, and the number of shares outstanding was 4.45 billion. What was the decline in value of AOL from its immediate postmerger market capitalization?
Explanation / Answer
Value of AOL on September 10, 2002 = share price × number of shares = $13.36 × 4.45 billion = $59.5 billion
Dollar Decline = $342.6 billion – $59.5 billion = $283.1 billion
Percent Decline = $283.1 billion / $342.6 billion = 82.6%