1) Before the offer for Gillette was announced (i.e., at the close of trade on 1/26/2005), P&G’s stock price was $55.44, and the firm had 2,522.583 million shares outstanding (fully diluted). If the proposed merger produced ZERO synergy, what would happen to P&G’s stock price after the merger is completed?
a). P&G stock price after merger (cash offer):
Value of combined firm after merger = value of P&G + value of Gilette (since synergy is zero)
value of P&G = price per share*number of fully diluted shares = 55.44*2,522.583 = 139,852 million
value of Gilette = 45*1,068.379 = 48,077.06 million
Value of combined firm = 139,852 + 48,077.06 = 187,929.06 million
Amount offered for Gilette = implied offer per share*number of shares = 54.05*1,068.379 = 57,745.88 million
Value of P&G after the merger = value of combined firm - amount offered for Gilette
= 187,929.06 - 57,745.88 = 130,183.17 million
P&G price per share after meger = 130,183.17/2,522.583 = $51.61 per share
b). P&G stock price after merger (stock offer):
Exchange ratio is 0.975 so 1 share of Gilette gets 0.975 shares of P&G
Therefore, total shares of P&G given for total shares of Gilette are 1,068.379*0.975 = 1,041.670 million
So, total number of shares for P&G after the merger = old number of shares + new shares issued = 2,522.583 + 1,041.670 = 3,564.253 million
%age of the new firm held by Gilette shareholders = shares issued/total new shares of P&G = 1,041.670/3,564.253 = 29.23%
So, the acquisition cost of 57.177 billion is for 29.23% ownership of new firm.
100% value of new firm = 100%*57,177/29.23% = 195,641 million
P&G price per share after merger = 195,641/3,564.253 = $54.89 per share
1) Before the offer for Gillette was announced (i.e., at the close of trade on 1/26/2005),...
1) Before the offer for Gillette was announced (i.e., at the close of trade on 1/26/2005), P&G’s stock price was $55.44, and the firm had 2,522.583 million shares outstanding (fully diluted). If the proposed merger produced ZERO synergy, what would happen to P&G’s stock price after the merger is completed? Given: Gillette’s stock price at the close of trade on 1/26/2005 was $45, with 1,068.379 million shares outstanding and had an implied offer for its stock price at $54.05 Given...
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