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Question: consider the following data in relation to a proposed acquisition...

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Consider the following data in relation to a proposed acquisition, where Firm B will take over Firm A in a horizontal takeover.

Pre-merger Value A $600m
Pre-merger Value B $475m
Post-merger Value A + B $1,200m
Cash Offer $630m
Share Offer 53% of Shares in A + B

 

a.  Estimate the gains available from the merger.  

b.  Estimate the value of the merger to firm A’s shareholders under both the cash and share offer.  

c.  Estimate the value of the merger to firm B’s shareholders under both the cash and share offer.  

d. Which offer will predominate, cash or shares, if the shareholders of A are given the choice?  

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