Mergers and Acquisition RWJ Chp 30. The Basic Forms of Acquisitions. There are three basic legal procedures that one firm can use to acquire another firm: Merger Acquisition of Shares Acquisition of Assets. Merger. Acquisition. Acquisition of Shares. Proxy Contest. Acquisition of Assets.
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Synergy – Premium
NPV of merger to acquirer =
Premium = Price paid for B - VB
NPV of merger to acquirer = Synergy - Premium
Lam’s share is trading for RM50 a share while Yeoh’s share goes for RM25 a share. Lam’s EPS is RM1 while Yeoh’s EPS is RM2.50. Both are 100% equity financed. Both companies have one million shares of stock outstanding.
b. Suppose Lam pays a premium of 20% in excess of Yeoh's current market value. How many shares of Lam must be given to Yeoh’s shareholders for each of their shares?
d. If Yeoh were to acquire Lam by offering a 20% premium in excess of Lam’s current market price, how many shares of stock would Yeoh have to offer, and what would be the effect on Yeoh’s EPS?
Susie's Pizza is analyzing the possible acquisition of Janet's Electric. The projected cash flows to debt and equity expected from the merger are as follows:
5, 6, … 6% growth per year
The current market price of Janet's debt is RM800,000, the risk‑free rate is 8%, the required return on the market is 12%, and the beta of the firm being acquired is 1.5.
a. Determine the maximum price (NPV) Susie can afford to pay.
b. If Janet's current equity value is RM1,100,000 and she demands a 30% premium, will the merger take place?