An acquirer has an issued capital of 300 million shares trading at $5.96. A target company...

An acquirer has an issued capital of 300 million shares trading at $5.96. A target company has an issued capital of 500 million shares trading at $2.95. The acquirer expects synergies from an acquisition with a present value of $300 million and offers target company shareholders 0.48 acquirer shares for each target company share. What is the likely post-announcement price of acquirer company stock (to two decimal places)?

Expert Solution

I. No. of Shares of Acquirer Company alloted to Acquirer Company = 500 Million Shares * 0.48/Share

No. of Shares of Acquirer Company alloted to Acquirer Company = 240 Million Shares

Total Number of Shares outstanding Post Acquisition = 300 Million + 240 Million = 540 Million

II.	Particulars	Shares Outstanding	Price/Share	Market Value
	A	B	C	*D = B C**
a	Acquirer Company	300 Million	$ 5.96	$1788 Million
b	Target Company	500 Million	$ 2.95	$1475 Million
c	Present Value of Synergy	.	.	$300 Million
d	Post-announcement Value of acquirer company	a+b+c	-	$3563 Million

III. Post Anouncement Price of Acquirer Price = Post-announcement Value of acquirer company / Shares outstanding Post Acquisition

Post Anouncement Price of Acquirer Price = $3563 Million / 540 Million

Post Anouncement Price of Acquirer Price = $6.60

jeff jeffy answered 1 year ago

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