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E-III Corp. is investigating the possible acquisition of Silicon Inc. Assume that both firms have no debt outstanding.

                                                      E-III Corp.          Silicon Inc.
Pre-announcement stock price             $15.00               $12.00

Number of shares outstanding             8 million              6 million

Synergy from the acquisition is estimated to be $22 million. Both firms agree that Silicon Inc. will be acquired for $13.50 per share. They are negotiating methods of payment: an all-cash offer, a stock exchange offer, as well as the combination of cash and stock exchange offer ($7.5 cash per share of Silicon plus 0.4 shares of E-III per share of Silicon). find out value of a merged company, the gains (losses) to each group of shareholders, NPV of a deal under various payment methods. Synergy remains the same regardless of payment method.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M9518

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