1) Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and is...
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1) Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. Rearden Metal is thinking of buying Associated Steel, which has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Rearden Metal will pay for Associated Steel by issuing new shares. There are no expected synergies from the transaction. Assume Rearden offers an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy Associated Steel.
- How many new shares Rearden needs to issue to pay for this deal?
- What is the exchange ratio?
- What will be the price per share of the combined corporation after the merger?
- What will be the price per share of the Rearden immediately after the announcement?
- What will be the price per share of the Associated Steel immediately after the announcement?
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