Consider the following premerger information about a bidding firm (Firm B) and a
ID: 2789727 • Letter: C
Question
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.
Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,700. Firm T can be acquired for $22 per share in cash or by exchange of stock where in B offers one of its share for every two of T's share.
At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers? (Do not round intermediate calculations and round your final answer to 4 decimal places. (e.g., 32.1616))
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.
Explanation / Answer
1)Offer 1:cash Benerfit extended = 2100*22= $ 46200
Offer 2 :shares Benefit :Number of shares offered :2100 *1/2= 1050
Amount offered = shares *market price of B
= 1050* 49
= $ 51450
Share offer is better for shareholders of T as benefit received from share offer is more than cash offer of 46200
2)At indifferent point ,benefit under both option are equal .so Amount offered under share offer = 46200
46200= 49* shares offered to T
46200/49 =shares offered
shares offered = 942.8571
Exchnage ratio : 942.8571 /2100 = .4490 :1
That is for every one share of T .4490 shares of B is offered .