Mr Acquirer wants to acquire Target Ltd$.$ but Target's board of directors has so far rejected a friendly merger. With no other option left, Acquirer is going for a tender offer directly to Target's shareholders. The offer costs $0\mathrm{.}2$ million in legal fees and is unrestricted $($i$.$e$.$ all shareholders can participate$)$ and conditional on gaining control $($i$.$e$.50\%$ of shares$).$ Target currently trades at $1$ per share and has $1$ million shares outstanding. Target$$s shareholders are dispersed and non$-$pivotal. It is well known that Acquirer will generate an increase in value of $2$ per share.

$($a$)$ Mr Acquirer wants to offer $2$ per share. Explain why the offer will not succeed.

$($b$)$ What is the minimum price at which the offer will succeed on behalf of Target$$s shareholders? Will Mr Acquirer launch a tender offer at that price? Explain.

$($c$)$ What is the minimum toehold the acquirer should have $($before announcing the tender offer$)$ so as to be able but also willing to acquire the company?

Answer rating: 100% (QA)

a The offer of 2 per share will not succeed because it does not offer a premium to Targets current t... View the full answer