Reading 31: Mergers and Acquisitions-LOS l 习题精选 2010, center, target, versus, style

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Session 9: Corporate Finance: Financing and Control Issues
Reading 31: Mergers and Acquisitions

LOS l: Evaluate a merger bid, calculate the estimated post-merger value of an acquirer, and calculate the gains accrued to the target shareholders versus the acquirer shareholders.

 

 

 

Big Steel is considering making a bid for Small Steel. The following data applies to the analysis:

	Big Steel		Small Steel
Pre-merger stock price	$75		$100
Number of shares outstanding	500m		40m
Pre-merger market value	$37,500m		$4,000m
Estimated synergies		$600m

If Big Steel buys Small Steel for $110 per share in cash, what are the gains to Big Steel and Small Steel, respectively?

Big Steel

Small Steel

A) $200m $400m

B) $400m $200m

C) $500m $100m

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Gains to Small Steel = takeover premium = $4,400 – $4,000 = $400m.
Gains to Big Steel = synergies – takeover premium = $600 – $400 = $200.

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Big Steel is considering making a bid for Small Steel. The following data applies to the analysis:

	Big Steel		Small Steel
Pre-merger stock price	$75		$100
Number of shares outstanding	500m		40m
Pre-merger market value	$37,500m		$4,000m
Estimated synergies		$600m

If Big Steel buys Small Steel by exchanging 1.45 shares of its stock for each share of Small Steel, what are the gains to Big Steel and Small Steel, respectively?

Big Steel

Small Steel

A) $100.8m $491.3m

B) $223.9m $376.1m

C) $246.2m $353.8m

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Value after takeover = $37,500 + $4,000 + $600 = $42,100m.
Shares exchanged for Small Steel = 1.45 × 40m = 58m.
Post-takeover share price = value after takeover / shares outstanding = 42,100m / 558m = $75.45.
Takeover price = number of shares to small steel × post-takeover share price = 58m × $75.45 = $4,376.1m.
Gains to Small Steel = takeover premium = $4,376.1 – $4,000 = $376.1m.
Gains to Big Steel = synergies – takeover premium = $600 – $376.1 = $223.9m.

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Which of the following statements concerning the gains from a merger are least accurate?

A) In a stock offer, gains to the target shareholders are dependent upon the post-merger stock price of the acquirer.

B) In a stock offer, the target shareholder’s gains are less than those from a comparable cash offer.

C) In a cash offer, the target shareholder’s gains are capped at the amount of the takeover premium.

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In a stock offer, the target shareholder’s gains will generally exceed those from a comparable cash offer. This, of course, depends upon the acquirer’s stock price following the merger. But, if the exchange ratio is based upon the acquirer’s pre-merger price, and if the post-merger price exceeds the pre-merger price, the target’s gains from the stock offer should be greater than those from a cash offer.