Firm A seeks to acquire (privately owned) firm T whose ultimate dollar value is uncertain because of
Question:
a. Firm A is hoping to acquire T in a 100 percent cash transaction. Is a mutually beneficial 100 percent cash transaction possible? Explain.
b. Instead, suppose that firm A considers acquiring T, paying all or in part with its own stock. (The owners of T are prohibited from selling the stock they receive for two years.) If A acquires T and subsequently T is found liable, both sides expect that As stock price will fall by 50 percent. Is a mutually beneficial 100 percent stock transaction possible?
(Provide an example to show whether the answer is yes or no.)
c. The firms are considering a provision in the acquisition allowing Ts senior managers (who will continue to work for the combined firm) to buy back (at a predetermined price) ownership of T in the event that the firm is found liable. Does such a provision make sense? Provide a qualitativeexplanation.
Step by Step Answer:
Managerial economics
ISBN: 978-1118041581
7th edition
Authors: william f. samuelson stephen g. marks