GrandeCo has earnings per share of £2. It has 11 million shares outstanding and is trading...

GrandeCo has earnings per share of £2. It has 11 million shares outstanding and is trading at £17 per share. GrandeCo is thinking of buying ChicoCo, which has earnings per share of £1.25, 7.3 million shares outstanding, and a price per share of £12.75. GrandeCo will pay for ChicoCo by issuing new shares. There are no expected synergies from the transaction. If GrandeCo offers an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 25% premium to buy ChicoCo.

Calculate the price per share of the combined corporation after the merger

What is the price per share of GrandeCo immediately after the announcement?

What is the price per share of the target company immediately after the announcement?

What is the actual premium the bidder will pay? Is this different from the premium originally offered? Explain why or why not.

Expert Solution

jeff jeffy answered 1 year ago

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