Question: Firm T (target), which is badly managed, has a current market share price (Status Quo value) of $4 per share. Optimal Value of firm T

Firm T (target), which is badly managed, has a current market share price (Status Quo value) of $4 per share.

Optimal Value of firm T on a stand-alone basis is $6 per share.

The merger of Firm A (acquirer) and Firm T (target) businesses yields an estimated synergy value of $4 per share.

1. What is maximum value of the target firm T to the acquiring Firm A? What are the potential M&A value can be created from this merger?

2. Suppose firm A acquired firm T at an acquisition price of $8 per share. What is the merger premium paid by firm A? Who get's the most of the merger benefits?

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