Anteater Ltd has 1 million shares outstanding which currently trade at a price o

Question

Anteater Ltd has 1 million shares outstanding which currently trade at a price of $20.00. It
has made a takeover offer to the shareholders of Tiger Ltd. Tiger Ltd has 1.3 million shares
outstanding with a current price per share of $2.00. Assume that the takeover will occur
with certainty and the market knows this. Further, the synergies expected from the merger
amount to $750,000.

a) Assume Anteater makes a cash offer to purchase Tiger for $3million. What will happen to
Anteater Ltd’s share price when it makes the announcement?

b) Assume Anteater makes a stock offer with an exchange ratio of 0.15. What happens to
the price of Anteater’s shares when it makes the announcement?

c) In the case of the stock offer at ‘b’ above, what is the value of the offer to Tiger’s
shareholders? If the merger was to occur with certainty, what would Tiger’s share price be
when the announcement is made?

d) Why are the answers to a) and b) the same or different?

Explanation / Answer

a)Anteater share price will come down after the announcement as they are paying(1.3mn*2)=$2.6mn and payinf $3mn so 0.4mn more
b)0.15 anteater=1tiger
1.3mn tiger= 1.3*.15=195,000 shares
market price= (1.3mn*10^6*2)/195,000
=$13.33
it is lesser than presemt $20 so stock price will cocme down
c)value of offer =(3mn-2.6mn)=0.4mn
tiger share price=0.15*20=$3
d)These are same

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.