The Hollings Corporation is considering a two-step buyout of the Norton Corporation. The latter firm has...
The Hollings Corporation is considering a two-step buyout of the Norton Corporation. The latter firm has 2.5 million shares outstanding and its stock price is currently $40 per share. In the two-step buyout, Hollings will offer to buy 51 percent of Norton’s shares outstanding for $62 per share in cash and the balance in a second offer of 840,000 convertible preferred stock shares. Each share of preferred stock would be valued at 40 percent over the current value of Norton’s common stock. Mr. Green, a newcomer to the management team at Hollings, suggests that only one offer for all of Norton’s shares be made at $59.25 per share.
a. Calculate the total costs of the two alternatives. (Do not round intermediate calculations. Enter your answers in dollars, not millions (e.g., $123,456,000).)
|
b. Which is better in terms of minimizing costs?
| Two step offer | |
| Single offer |
Homework Answers
a. Two step offer Total Costs = 51% shares cost + Preferred shares cost
= 2500000*51%*62 + 840000*40*(1+40%)
= $126090000
Single offer Total Costs = 2500000*59.25 = $148125000
b. Two step offer is better in terms of minimizing costs.
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