Question

Harolds PLC has a market value of £400 million and 30 million shares outstanding. Selfishes Department Store has a market value of £160 million and 18 million shares outstanding. Harolds is contemplating acquiring Selfishes. Harolds’ CFO concludes that the combined firm with synergy will be worth £590 million, and Selfishes can be acquired at a premium of £15 million.

If Harolds offers 12 million shares of its stock in exchange for the 18 million shares of Selfridges, what will the stock price of Harolds be after the acquisition and What exchange ratio between the two stocks would make the value of the stock offer equivalent to a cash offer of £175 million?

Answer 1

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@ v D * 5 ENG 12:14 24-03-2000 526 GD161 * : GC fic G DGE GF GG GH GIGI GK GL GM GN GO GP GQ 161 162 HARRODS MARKET VALUE SELFRIDGE MARKET VALUE SYNERGY TOTAL VALUE AFTER SYNERGY 400 160 30 [590 - (400+ 160)] 590 165 TOTAL NO OF SHARES AFTER MERGER TOTAL VALUE OF MERGED ENTITY PRICE PER SHARE AFTER MERGER 42 [30 + 12] 590 14.05 (590/42] CASH OFFER PRICE PRICE PER SHARE PAID BY HARRODS = 9.72 (=(160+15)/18) MERGER GAIN = SYNERGY GAIN = MERGER PREMIUM = CASH OFFER - CURRENT VALUE OF THE FIRM 175 - 160 = 15 NPV OF THE MERGER = MERGER GAIN - MERGER PREMIUM 30 -15 = 177 15 VALUE OF HARRODS AFTER MERGER = VALUE OF HARRODS AFTER MERGER = VALUE OF HARRODS AFTER MERGER = (CURRENT VALUE OF HARRODS + NPV)/ NO OF SHARES (400 +15)/30 13.83 183 184 b EXCHANGE RATIO = 9.72 / 13.83 = 0.7028 country allocation amorti LOAN OPTIONS SPLIT VALUE OF SHARE ... NPV real cfat merger HPR REAL RETURN EPS BEST PLAN EAC HIGH LOW Sheet1 S... →