Question

BAD​ Company's stock price is $35​, and it has 4.0 million shares outstanding. You believe that if you buy the company and replace its​ management, its value will increase by

40%. Assume that BAD has a poison pill with a 20% trigger. If​ triggered, all target shareholders long dash—other than the acquirer long dash—will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price remains at $35 while you are acquiring your shares. If​ BAD's management decides to resist your buyout​ attempt, and you cross the 20% threshold of​ ownership:

a. How many new shares will be issued and at what​ price?

b. What will happen to your percentage ownership of​ BAD?

c. What will happen to the price of your shares of​ BAD?

d. Do you lose or gain from triggering the poison​ pill? If you​ lose, where does the loss go​ (who benefits)? If you​ gain, where does the gain come from​ (who loses)?

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E " ゴWrap Text aCopy B 1 u. ,_a. ars-函Merge & Center, $, % , 弼,8 C Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard Alignment Number Cells MJ2 MI MJ MK ML MN MO MP MQ MR MS MT MU MW MX IF POISON PILL IS TRIGGERED YOU WILL OWN = 800000 SHARES OTHER SHARES OTHER SHAREHOLDERS WILL PURCHASE 320000O SHARES MORE AT A PRICE OF 17.5 (50% DISCOUNT TO CURRENT PRICE) 4 4 MILLION X 20%) 3200000 SHARES 6 8 SO NO OF SHARES ISSUED- PRICE = 3200000 17.5 10 12 13 14 15 16 17 18 19 20 1 トト AS YOU OWN 800000 SHARES AND OTHER SHAREHOLDERS OWN 3200000+ 3200000 6400000 SHARES YOUR OWNERSHIP-800000/(800000 + 6400000)-11.11% MARKET PRICE OF ALL SHARES 4000000 X35 3200000 X 17.5 196000000 EV PE EPS DIV ABNORMAL APV ROSS | deberk , MARGIN MONEY al tax . PB ROPİ eEVA MVA LEVERAGED BUY SWAP distress BRIGHAN CAP GAIN 07:10 15-01-2019

Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum Calibri ー E " ゴWrap Text General aCopy ,_a. ars-函Merge & Center, $, % , 弼,8 C Paste B 1 u. Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard MJ33 MI Font Alignment Number Styles Cells Edting MJ MK ML MN MO MP MQ MR MS MT MU MW MX 15 16 17 18 19 20 21 MARKET PRICE OF ALL SHARES 4000000 X 35 3200000 X 17.5 140000000 196000000 PRICE PER SHARE 27.22 (196000000/7200000) 23 24 25 26 27 28 29 30 31 32 YOU WILL LOOSE AS YOU PURCHASED SHARES AT 35 AND NOW PRICE IS 27.22 SHAREHOLDERS WILL GAIN AS THEIR PURCHASE PRICE (35+ 17.5)/2-26.25 AND NOW PRICE 27.22 i1 1 H İ (EV PE EPS DIV ABNORMAL APV ROSS | deberk 1 MARGIN MONEY al tax . PB ROPİ eEVA MVA LEVERAGED BUY SWAP distress BRIGHAN CAP GAIN 07:10 15-01-2019