Question

# Lenix is planning on merging with Kelly Company. Lenix currently has 80,000 shares of stock outstanding...

Lenix is planning on merging with Kelly Company. Lenix currently has 80,000 shares of stock outstanding at a market price of \$31.50 a share. Kelly Company has 52,000 shares outstanding at a price of \$26.00 a share. The merger will create \$440,000 of synergy. How many of its shares should Lenix offer in exchange for all of Kelly Company share if it wants its acquisition cost to be \$1,450,000?

40,117

40,316

40,425

40,531

40,682

Market Value of merged firm = Market Value of Lenix (before merger) + Market Value of kelly (before merger) + synergy benefit
= (80,000 * \$31.50) + (52,000 * \$26) + \$440,000
= \$2,520,000 + \$1,352,000 + \$440,000
= \$4,312,000

Net value of firm after acquisition = Market Value of merged firm - Acquisition cost
= \$4,312,000 - \$1,450,000
= \$2,862,000

Value per share of merged firm = Net value of firm after acquisition / Number of shares existing shareholders hold
= \$2,862,000 / 80,000
= \$35.775

Number of shares Lenix should offer to Kelly shareholders = \$1,450,000 / \$35.775 = 40,531

Number of shares Lenix should offer to Kelly shareholders = 40,531

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