Merger NPV Harrods PLC has a market value of £450 million and 18 million shares outstanding. Selfridge Department Store has a market value of £120 million and 11 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods's CFO concludes that the combined firm with synergy will be worth £625 million and Selfridge can be acquired at a premium of £55 million.
a. If Harrods offers 4 million shares of its stock in exchange for the 11 million shares of Selfridge, what will the stock price of Harrods be after the acquisition?
b. What exchange ratio between the two stocks would make the value of a stock offer equivalent to a cash offer of £140 million?