The logic of Mergers & Acquisitions
Joe C. Raider is attempting to acquire 100% of Shareholder Value, Inc. The value of Shareholder Value under current management can be anywhere between £0 and £100 per share, depending on the outcome of key R&D projects. All share values between £0 and £100 are equally likely.
Whatever the ultimate value under the current management, the company will be worth 50% more under Joe C. Raider’s management. For example, if Shareholder Value is worth £100/share under its current management, it would be worth £150/share to Joe C. Raider.
His offer must be made now, before the outcome of the projects are known. From all indications, Shareholder Value would be happy to be acquired, provided it is at a profitable price. They will decide on his bid after the results of the projects. Thus, Joe C. Raider will not know the value of Shareholder Value when submitting his offer, but they will know its value under current management when deciding whether or not to accept.
What price offer per share would Joe C. Raider tender for Shareholder Value’s stock?
Whatever the ultimate value under the current management, the company will be worth 50% more under Joe C. Raider’s management. For example, if Shareholder Value is worth £100/share under its current management, it would be worth £150/share to Joe C. Raider.
His offer must be made now, before the outcome of the projects are known. From all indications, Shareholder Value would be happy to be acquired, provided it is at a profitable price. They will decide on his bid after the results of the projects. Thus, Joe C. Raider will not know the value of Shareholder Value when submitting his offer, but they will know its value under current management when deciding whether or not to accept.
What price offer per share would Joe C. Raider tender for Shareholder Value’s stock?
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