An acquirer’s standalone share price is $12 and its number of shares outstanding is 1,000,000. The target firm has 100,000 shares outstanding, and its standalone share price is $10. The synergy gain from merging the two firms is $500,000.
a. If the acquirer offers to buy the target for $13 in cash, what is the acquisition premium for target shareholders?
b. If the acquirer offers to buy the target for $13 in cash, what is the NPV of the deal for acquirer shareholders?
c. If instead the offer price for the target firm is 1.2 shares of the acquirer for every share of the target, what should the acquirer’s post deal stock price be? Does the deal create value for acquirer shareholders?
d. Under the conditions in c. above, what would the acquirer’s stock price be if the synergy gains were only $300,000? Does the deal still create value for acquirer shareholders?