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 present value of the after-tax synergy gains 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?
d. Under the conditions in c. above, what is the NPV of the deal for acquirer shareholders?
e. What is the exchange ratio in this deal that would leave the acquirer’s stock price unchanged from before to after the merger?
f. 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?
-For question #1c., what is the post-merger ownership distribution? In other words, what fraction of the newly merged firm is owned by the old acquirer shareholders and what fraction is owned by the old target shareholders?