Question

An acquirer has an issued capital of 300 million shares trading at $5.95. A target company has an issued capital of 500 million shares trading at $2.78. The acquirer expects synergies from an acquisition with a present value of $200 million. What is the maximum exchange ratio (to two decimal places) that could be offered in a stock swap and still generate a positive-NPV for the acquirer?

Answer 1

Acquirer has share capital fo 300 million

Traded at $5.95 per share

So net worth of company = 300*5.95

                        = 1785 million dollars

Target co

Share capital 500 million

Share price.     2.78 $ per share

Net worth = 500*2.78

           =1390 million dollars

Senergy form acquisition 200 million dollars

Maximum ratio that can be offer by acquirer = value of target + senergy by acquisition

= 1390 +200

= 1590 million dollars

Or say 1590/500 =3.18$ per share

The exchange maximum exchange could be offer = target share price/acquirer share price

=3.18/5.95

=0.5344share of aceqirer per share of target or say 318 share of aceqirer for 595 share of target

Or say acquirer should not issue more than 267.2268 in any condition

In this condition value of new firm would be = 1785 +1390 +200

=3375 million dollars

Share would be = 300 +267.2268

                           =567.2268 million

Share price will be =3375/567.2268

                        = 5.95$