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pany has earnings per share of $4. It has 1 million shares outstanding, each of which has a price of $38. You are thinking of buying TargetCo, which has earnings of $1 per share, 1 million shares outstanding and a price per share of $21. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Suppose you offered an exchange ratio such that, at current p share prices for both firms, the offer represents a 22% premium to buy TargetCo. However, the actual premium that your company will pay for TargetCo when it completes the transaction will not be 22%, because on the announcement the target price will go up and your price will go down to reflect the fact that you are willing to pay a premium for TargetCo without any synergies. Assume that the takeover will occur with certainty and all market participants know this on the announcement of the takeover (ignore time value of money). a. What is the price per share of the combined corporation immediately after the merger is completed? What is the price of your company immediately after the announcement? c. What is the price of TargetCo immediately after the announcement? d. What is the actual premium your company will pay?

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Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E ゴWrap Text ta copy ▼ в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. ▼ ㆆ ▼ Clipboard IN21 IC Alignment Number Cells ID IE IF IG IH IK IM IN IO IP IQ 4 PRICE OFFERED = AT 22% PREMIUM= 21*(1+0.22)- 25.62 6 EXCHANGE RATIO25.62/38 0.6742 NO OF SHARES TO BE ISSUED = 1 MILLION X 0.6742 = 0.6742 MILLION (38 21)/(1 +0.674235.24 (SUM OF CURRENT PRICE OF BOTH COMPANIES)/TOTAL NO OF SHARES AFTER MERGER 10 a PRICE PER SHARE AFTER MERGER- 12 13 b 14 15 c 16 17 18 d 19 20 21 SAME PRICE AS MERGER PRICE 35.24 PRICE OF TARGET COMPANY 23.76 (35.24 X 1 MILLION X 0.6742) PRICE AFTER MERGER X NO OF SHARES OF HOLDING COMPANY X EXCHANGE RATE) ACTUAL PREMIUM 23.76/21 -1- 13.14% allocation amorti LOAN OPTIONS SPLIT VALUE OF SHARE HPR REAL RETURN EPS B AC HIGH LOW Sheet1 . 02:01 31-01-2019

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