Smith enterprise can acquire Miller inc for $250000 in either cash or stock. Both companies are 100% equity financed. the synergy value of the acquisition for smith is $35000. Currently smith has 25000 shares outstanding which trade at $29 a share, whereas miller has 15000 shares outstanding that trade at 14 a share.
How many shares would be given to Miller's shareholders in a stock financed deal and
what would be the exchange ratio in a pure stock exchange merger?
exchanger
Let the number of shares offered by Smith to Miller be K
Smith's Stock Price = $ 29 and Miller's Stock Price = $ 14
Therefore, Miller's Value = 14 x Number of Shares Outstanding = 14 x 15000 = $ 210000
Number of Smith Shares Outstanding = 25000 and Smith's Synergy gains = $ 35000
Therefore, K x 29 - 210000 = 35000
K = (210000 + 35000) / 29 = 8448.27586 ~ 8449
Exchange Ratio = 8449 / 15000 = 0.56322
Smith enterprise can acquire Miller inc for $250000 in either cash or stock. Both companies are 100% equity financed. the synergy value of the acquisition for smith is $35000. Currently smith has 2500...
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