value of combined firm = 185 million
Stock value after acquisition = Value of combined firm / No of total shares
No of total shares = Shares od YQR + New issue to HKG
= 5,000,000 (given) + 1,200,000 (new issue)
= 6,200,000
Stock Value after acquisition = 185,000,000 / 6,200,000
= 29.84
Now,
Cash offer = Stock offer
Let the exchange ratio be X
Value of firm firm Y after acquisition = (Value per shares after acquisition) * (No of shares)
= (Value of combined firm / Total no of shares) * (2,000,000 * X)
= (185,000,000 / (5,000,000 + 2,000,000 * X)) * (2,000,000*X)
Equating it with Cash Offer
50,000,000 = (185,000,000 / (5,000,000 + 2,000,000 * X)) * (2,000,000*X)
Solving it X will be 0.9259
Exchange Ratio of 0.9259 will make the cash offer and share offer equivalent.
If there is any Query, please ask in the comment section.
Get Answers For Free
Most questions answered within 1 hours.