Question

An acquirer has an issued capital of 300 million shares trading at $6. A target company has an issued capital of 500 million shares trading at $3.04. The acquirer expects synergies from an acquisition with a present value of $300 million and offers target company shareholders 0.49 acquirer shares for each target company share. What is the likely post-announcement price of target company stock (to two decimal places)?

Answer 1

Here, M = million

1)

No. of total Shares after Post merger = 300 M + (500M*0.49)

No. of total Shares after Post merger = 300M + 245M

No. of total Shares after Post merger = 545 M

2)

Total market Value after merger = (300M*6) + (500M*3.04) + Synergies

Total market Value after merger = (300M*6) + (500M*3.04) + 300M

Total market Value after merger = 1800M + 1520M +300M

Total market Value after merger = 3620M

So, likely post-aquisition price of Aquire company = 3620M / 545M = $6.64/share

So, Likely post-annoucement price of Target company = $ 6.64*0.49 = $3.25/share