Firm B plans to acquire firm T. Both firms have no debt. B believes the acquisition...
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Firm B plans to acquire firm T. Both firms have no debt. B believes the acquisition will increase its total after-tax annual cash flow by $1.6 million for the next three years and then it decreases to 1.2 million, indefinitely. The appropriate discount rate for the incremental cash flows is 12%. The pre-merger information about firm B and target firm T is: Shares outstanding Price per share Firm B 450,000 $62 Firm T 240,000 $45 Firm B gives two offers to Firm T. First, Firm B offers $48 per share in cash. Second, it offers three of its shares for every five of T's shares. 1. What is the synergy from acquiring firm T? 2. What is the bidder premium for cash offer? 3. Which offer will the target firm accept? 4. At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers? Firm B plans to acquire firm T. Both firms have no debt. B believes the acquisition will increase its total after-tax annual cash flow by $1.6 million for the next three years and then it decreases to 1.2 million, indefinitely. The appropriate discount rate for the incremental cash flows is 12%. The pre-merger information about firm B and target firm T is: Shares outstanding Price per share Firm B 450,000 $62 Firm T 240,000 $45 Firm B gives two offers to Firm T. First, Firm B offers $48 per share in cash. Second, it offers three of its shares for every five of T's shares. 1. What is the synergy from acquiring firm T? 2. What is the bidder premium for cash offer? 3. Which offer will the target firm accept? 4. At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers?
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Answer rating: 100% (QA)
Acquisition Analysis of Firm B and Firm T 1 Synergy from Acquiring Firm T Synergy refers to the additional value created by the merger that neither fi... View the full answer
Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Posted Date:
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