You just graduated and started as an analyst at a leveraged buyout rm. Your first assignment is to evaluate a potential buyout of T Technologies, which currently has no debt. Its current share price is $24, and it has 10 million shares outstanding. If your firm buys T Technologies and replaces its management, you believe that its value will increase by 30%. As part of the deal, your firm will issue a tender oer for 50% of the outstanding shares at $30 per share.
a. What is the firm value before and after the LBO?
b. What is the equity value after the LBO and the price per share?
c. Do shareholders tender or not tender their shares, and why?
d. How much does your LBO firm gain from this transaction?