Siena Inc., a large tech company, is considering making an offer to purchase Maive Inc., a...

 

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Siena Inc., a large tech company, is considering making an offer to purchase Maive Inc., a smaller network company. Both firms are all equity financed. You have collected the following information on the two companies as of the end of the current year: Price-earnings ratio Shares outstanding Earnings $2,000,000 Siena. 6 500,000 $2,000,000 Maive 4 220,000 $660,000 Maive Inc. currently pays out an annual dividend of one dollar per share. Security analysts expect that, with its current stand-alone operations, Maive's annual dividends per share would grow perpetually at 4% per year. However, Siena's management believes that the acquisition of Maive would open up some new growth opportunities that would result in 6% perpetual annual growth of Maive's dividends per share. a) What is the post-acquisition value of Maive to Siena? b) If Siena were to offer $15 cash for each share of Maive, what would be the per-share price of Siena after its acquisition of Maive? c) What would be the per-share price of Siena if it were to acquire the outstanding stock of Maive with a shares-exchange ratio of 1:4 (i.e. 1 share of Siena for every 4 shares of Maive)? d) At what shares exchange ratio would shareholders of Maive be indifferent between stock- financed acquisition and cash-financed acquisition? Siena Inc., a large tech company, is considering making an offer to purchase Maive Inc., a smaller network company. Both firms are all equity financed. You have collected the following information on the two companies as of the end of the current year: Price-earnings ratio Shares outstanding Earnings $2,000,000 Siena. 6 500,000 $2,000,000 Maive 4 220,000 $660,000 Maive Inc. currently pays out an annual dividend of one dollar per share. Security analysts expect that, with its current stand-alone operations, Maive's annual dividends per share would grow perpetually at 4% per year. However, Siena's management believes that the acquisition of Maive would open up some new growth opportunities that would result in 6% perpetual annual growth of Maive's dividends per share. a) What is the post-acquisition value of Maive to Siena? b) If Siena were to offer $15 cash for each share of Maive, what would be the per-share price of Siena after its acquisition of Maive? c) What would be the per-share price of Siena if it were to acquire the outstanding stock of Maive with a shares-exchange ratio of 1:4 (i.e. 1 share of Siena for every 4 shares of Maive)? d) At what shares exchange ratio would shareholders of Maive be indifferent between stock- financed acquisition and cash-financed acquisition?

Answer rating: 100% (QA)

We need to calculate the present value of Maives perpetually growing dividends per share using the appropriate growth rate a Postacquisition value of ... View the full answer