You work for a leveraged buyout firm and are evaluating a potential buyout of Under-Water Company. UnderWater’s stock price is $24, and it has 2.25 million shares outstanding.

You believe that if you buy the company and replace its management, its value will increase by 42%. You are planning on doing a leveraged buyout of Under-Water, and will offer $30 per share for control of the company.

a. Assuming you get 50% control, what will happen to the price of non-tendered shares?

b. Given the answer in (a), will shareholders tender their shares, not tender their shares, or be indifferent?

c. What will be your gain from the transaction?