Question: ABC Inc. is planning to purchase DEF Inc. in one of two ways: (1) By paying $22 per share in cash; or (2) By giving

ABC Inc. is planning to purchase DEF Inc. in one of two ways:
(1) By paying $22 per share in cash; or
(2) By giving DEF’s shareholders two shares in the new combined firm ABC-DEF for each share of DEF. Prior to the merger, DEF had 500,000 shares outstanding, trading at $20 per share. ABC had 600,000 shares outstanding, trading at $18 per share. Assume that ABC is properly priced prior to the acquisition. DEF is valued at $15,875,000 to ABC. Should ABC acquire DEF? If so, which method should it use to acquire DEF?

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