Suppose that the price of a GameStop share (GME) was $100 and the price of an Alphabet
Question:
Suppose that the price of a GameStop share (GME) was $100 and the price of an Alphabet Inc share (GOOG) was $2,000 at the end of the day on March 12nd, 2021.
Over the weekend of March 13th, 2021.Alphabet Inc announced an acquisition of GameStop company with all cash offer of $200 per share.
That is, Alphabet will buy all existing GME shares for $200 per share 'on the closing day of acquisition'.
The announced closing day of the merger is April 1st, 2022.
On that day, all the owners of GameStop stock will receive $200 cash per share, and their ownership will be transferred to Alphabet Inc.
This deal was approved by regulators and also by both GameStop shareholders and Alphabet shareholders on March 15th, 2021,so that the deal is now 100% certain to happen.
If the risk free interest rate is fixed at 10% with continuous compounding at least for the next a few years ,what would be the 'no arbitrage' price of a Game Stop share on April 1st, 2021 in the stock market (exactly 1 year before the closing day)?
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford