Foxy News (currently trading at $50/share) is considering purchasing its rival Pulitzer Publications. Both firms currently have 1,000,000 shares outstanding and Pulitzer generates $1,500,000 in free cash flows each year. Foxy estimates that synergies between the two firms would generate another $100,000 each year in free cash flows as well as increase growth in Pulitzer’s business from 5% to 6% each year (the appropriate discount rate for Pulitzer is 10%). Foxy’s management is considering whether to offer straight cash for each share of Pulitzer or whether to offer their target a 40% stake in the combined firm.
If Pulitzer's shareholders are indifferent between a cash purchase and an equity-backed purchase, at what price per share would the shareholders of Pulitzer be indifferent between the two offers?