4. Mergers & Acquisitions - Suppose that Fox Entertainment Group has just made an offer to...

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4. Mergers & Acquisitions - Suppose that Fox Entertainment Group has just made an offer to acquire CKX, the firm that owns American Idol. Prior to the offer, CKX had 30 million shares outstanding that traded at a price of $25, and Fox had 50 million shares outstanding that traded at $40. Assume that prior to the offer, the stock market did not anticipate an acquisition of CKX by FOX. As a result of the merger, Fox estimates that CKX's operations will generate an additional $60 million FCF year via synergies The business risk of CKX's operations will remain the same as before the merger. You should assume that the ra for Fox is 10% and the ra for CKS is 15%. The proposed merger will not affect the riskiness of either company's existing debt. Use this information to answer the below questions, and when possible, please express all answers in millions of dollars. a. (1.5 points) If Fox is correct in its estimates, what will be the combined equity value of the merged firm if it uses equity to finance the deal? [i.e. what is PVAB?] b. (2 points) Suppose that Fox offers to pay 5/6 a share of Fox for each share of CKS. What is the value gained by CKS shareholders from the deal? 4. Mergers & Acquisitions - Suppose that Fox Entertainment Group has just made an offer to acquire CKX, the firm that owns American Idol. Prior to the offer, CKX had 30 million shares outstanding that traded at a price of $25, and Fox had 50 million shares outstanding that traded at $40. Assume that prior to the offer, the stock market did not anticipate an acquisition of CKX by FOX. As a result of the merger, Fox estimates that CKX's operations will generate an additional $60 million FCF year via synergies The business risk of CKX's operations will remain the same as before the merger. You should assume that the ra for Fox is 10% and the ra for CKS is 15%. The proposed merger will not affect the riskiness of either company's existing debt. Use this information to answer the below questions, and when possible, please express all answers in millions of dollars. a. (1.5 points) If Fox is correct in its estimates, what will be the combined equity value of the merged firm if it uses equity to finance the deal? [i.e. what is PVAB?] b. (2 points) Suppose that Fox offers to pay 5/6 a share of Fox for each share of CKS. What is the value gained by CKS shareholders from the deal?