Question

15 . Individual Problems 2-5

Suppose Apple recently made a bid to acquire Netflix. As a result, the market value of Netflix rose. Furthermore, suppose the market value of Apple fell by the same amount, exactly offsetting the rise in the market value of Netflix.

What does this tell you about the value-creating potential of the deal?

The market thinks that combining these assets will neither create nor destroy value.

The market thinks that combining these assets will destroy value.

The market thinks that combining these assets will create value.

Answer 1

The market thinks that combining these assets will neither create nor destroy value as the value of Netflix shares rose exactly by the amount by which the share of apple fell.

Answer-First option