Question

Clarkson is planning on merging with Dixon. Clarkson currently has 200,000 shares of stock outstanding at a market price of $49.80 a share. Dixon has 82,000 shares outstanding at a price of $34.80 a share. The merger will create $432,000 of synergy. How many of its shares should Clarkson offer in exchange for all of Dixonâ s share if it wants its acquisition cost to be $2,620,000? 51,206 49,315 48,447 50,121 47,854

Answer 1

Net present value = (Market value of target firm + Synergy - acquisition cost

= (82,000 * $34.80) + $432,000 - $2,620,000

= $665,600

Share price = ((200,000 * $49.80) + $665,600) / 200,000 = $53.128

Number of shares offered = Acquisition cost / share price

= $2,620,000 / $53.128

= 49,315

Hence, Number of shares offered = 49,315

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