Namath Beverage is considering buying Vick Cocktails. Namath is currently trading at $25 per share and has 100,000 shares outstanding. Vick is currently valued at $1.4 million. Both firms are all equity. Namath believes the deal will create an additional $54,000 in incremental cash flows per year indefinitely and estimates the appropriate discount rate for the incremental cash flows to be 9%. Namath is considering offering $1.9 million in cash or 40% of its stock for Vick.
A) What percentage of the synergy do Namath shareholders receive in the cash offer?
B) What percentage of the synergy do Namath shareholders receive in the stock offer?
C) Assuming both offers would be successful, which offer should Namath make?