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The Hollings Corporation is considering a two-step buyout of the Norton Corporation. The latter firm has...

The Hollings Corporation is considering a two-step buyout of the Norton Corporation. The latter firm has 3.3 million shares outstanding and its stock price is currently $40 per share. In the two-step buyout, Hollings will offer to buy 51 percent of Norton’s shares outstanding for $58 per share in cash and the balance in a second offer of 920,000 convertible preferred stock shares. Each share of preferred stock would be valued at 50 percent over the current value of Norton’s common stock. Mr. Green, a newcomer to the management team at Hollings, suggests that only one offer for all Norton’s shares be made at $43.25 per share.

a. Calculate the total costs of the two alternatives. (Do not round intermediate calculations. Enter your answers in dollars, not millions (e.g., $123,456,000).)


b. Which is better in terms of minimizing costs?

  • Single offer

  • Two step offer

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