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The below homework question is from the BIRDIE GOLF case study in the Corporate Finance book...

The below homework question is from the BIRDIE GOLF case study in the Corporate Finance book (11th Edition) page 921:

Please provide at least two or three sentences in answering the question. SHOW ALL CALCULATIONS. Thank you.

4. What is the highest exchange ratio Birdie would be willing to pay and still undertake the merger?

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Answer #1

The highest exchange ratio Birdie would be willing to pay and still undertake the merger would occur when the NPV of the merger equals to zero. This occurs when the acquisition cost equals to $411,195,466 (250,000,000+161,195,466). At this cost, the additional shares Birdie would have to issue would increase to 4,726,384.67. At this acquisition price and number of shares, the price per share increases to $51.40 from $31.25 . In this situation Birdie would distribute 1 share of their stock for every 3.81 shares owned by Hybrid shareholders.

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