Discussion:
(A) A bidding firm, A, is worth $27,000 as a stand-alone entity. A target firm, B, is worth $12,000 as a stand-alone entity, but $18,000 if it is acquired and integrated with Firm A. Several other firms are interested in acquiring Firm B, and Firm B is also worth $18,000 if it is acquired by these other firms. If Firm A acquired Firm B, would this acquisition create value? If yes, how much? How much of this value would the equity holders of Firm A receive? How much would the equity holders of Firm A receive? How much would the equity holders of Firm B receive?
(B) The same scenario as above except that the value of firm B, if it is acquired by the other firms interested in it, is only $12,000.
(C) The same scenario in part (a), except that the value of Firm B, if it is acquired by the other firms interested in it, is $16,000.
(D) The same scenario as part (b), except that the firm B contacts several other firms and explains to them how they can create the same value with Firm B that Firm A does.
(E) The same scenario as in part (b), except that Firm B sues Firm A. After suing Firm A, Firm B installs a "supermajoriity" rule in how its board of directors operates. After putting this new rule in place, Firm B offers to buy back any stock purchased by Firm A for 20 percent above the current market price.