ubmt his Question: 1 pt 1 of 4 This Quiz: 4 pts poss BAD Company\'s stock price
ID: 2591243 • Letter: U
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ubmt his Question: 1 pt 1 of 4 This Quiz: 4 pts poss BAD Company's stock price it $25, and the frm has 12 millen shares outstanding. Yeu belave management Assume that BAD has a poisen pan with a 25% trigger. If triggered, al oe shareholders-aher than tho acquror in BAD you can increase the cempany's value f you buy t and replace the ml be aale to buy one new nara for each share they own at a60% dscoum. Assume that the price remans at S25 while you re acquiring your shares rBAD's managemar decider te rest your tuyout attempt, and you cross the >5% threshold fcwnership a. Haw many now shares wil be issued and at what price? b. What will happen to your percentage ownership of BAD? c. What wil happen to the price of your ehares of BAD? d. Do you lose or gain from triggering the poison parr you lose, where does the loss go Mo benefis ? r yo. gain from where does the gain comeho low ? The number of new shares issued is Round to the nearest integer) The new shares will be issaed at b. What wil happen to your percentage ownership of BAD? Your percentage ownership of BAO Campany will be ©%. Round to two decimal pa C. What wil happen to the price of your shares of BAD? The new stock price of your shares of BAD Company wil be s (Round to the nearest cent ) S per share (Round to the nearest cent) Cick to select your answen(s) Save for Later Copytighs 2017 Pearson EducationExplanation / Answer
a. 25% of 12 million shares = 3,000,000 or 3 million
Thus number of new shares issued = 12 million - 3 million = 9 million or 9,000,000 shares
The new shares will be issued at a 60% discount. Thus price = (1-60%)*$25 = $10
b. Total no. of shares now = 12 million+9 million = 21 million
You will own 3 million of them and so your percentage ownership = 3/21 = 14.29%
c. When poison pill is triggered then market value will be = $25*12 million + $10*9 million = $390 million
New stock price = $390 million/21 million shares = $18.57 per share
d. You lose from triggering the poison pill as your shares that were worth $25 are now worth $18.57 per share. Everyother shareholder in the target firm gains as they paid only (25+(1-0.6)*25) = $30 for shares that are worth more.
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