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?
Market Value of merged firm = Market Value of Lenix (before
merger) + Market Value of kelly (before merger) + synergy
= (80,000 * $31.50) + (52,000 * $26) + $440,000
= $2,520,000 + $1,352,000 + $440,000
Net value of firm after acquisition = Market Value of merged
firm - Acquisition cost
= $4,312,000 - $1,450,000
Value per share of merged firm = Net value of firm after
acquisition / Number of shares existing shareholders hold
= $2,862,000 / 80,000
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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