Harrods PLC has a market value of 95 million and 4.5 million shares outstanding. Selfridge Department Store

Question:

Harrods PLC has a market value of £95 million and 4.5 million shares outstanding. Selfridge Department Store has a market value of £32 million and 1.8 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods’s CFO concludes that the combined firm with synergy will be worth £145 million, and Selfridge can be acquired at a premium of £3.3 million.

a. If Harrods offers 1.1 million shares of its stock in exchange for the 1.8 million shares of Selfridge, what will the stock price of Harrods be after the acquisition?

b. What exchange ratio between the two stocks would make the value of a stock offer equivalent to a cash offer of £35.3 million?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...

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