Question

Harrods PLC has a market value of £137 million and 5 million shares outstanding. Selfridge Department Store has a market value of £39 million and 3 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods’s CFO concludes that the combined firm with synergy will be worth £191 million and Selfridge can be acquired at a premium of £10 million.

b. What exchange ratio between the two stocks would make the value of a stock offer equivalent to a cash offer of £49 million? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)

Exchange ratio ________ to 1

Answer 1