The stock of Ultrasound Communications Company (UCC) is listed for trading on the NYSE Euronext-Paris stock exchange. For the past several weeks, UCC's stock price has remained around euro 35 per share. Assume that a competitor, Broadband Telephony Company (BTC), announces that it wishes to acquire UCC in an all-cash tender offer for euro 60 per share. BTC also announces that it is willing to pay this price for all UCC's shares tendered to it under the offer, and BTC says that UCC's managers support the takeover attempt. If the tender offer is successful, a merger will be effected in three months' time, and UCC will cease to exist as a separate company. Thus, its stock will no longer be listed on the exchange.
a. What price do you think UCC's stock will sell for immediately after this announcement? Explain.
b. Draw a figure illustrating the likely evolution of UCC's stock price over the next three months.