Harrods PLC has a market value of £137 million and 5 million shares outstanding. Selfridge Department Store has a market value of £39 million and 3 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods’s CFO concludes that the combined firm with synergy will be worth £191 million and Selfridge can be acquired at a premium of £10 million.
a. If Harrods offers 1.5 million shares of its stock in exchange for the 3 million shares of Selfridge, what will the stock price of Harrods be after the acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
New stock price £ __________
b. What exchange ratio between the two stocks would make the value of a stock offer equivalent to a cash offer of £49 million? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)
Exchange ratio _______ to 1