9.3 In July 2007, News Corp. entered into an agreement to purchase all of the ou
ID: 2751401 • Letter: 9
Question
9.3 In July 2007, News Corp. entered into an agreement to purchase all of the outstanding shares of Dow Jones and Company for $60 per share. Immediately prior to the News Corp. bid, the shares of Dow Jones traded at $33 per share. The number of outstanding shares at the time of the announcement was 82 million. The book value of interest-bearing liabilities on the balance sheet of Dow Jones was $1.46 billion.
a. Estimate the cost of this acquisition to the shareholders of NewsCorp.
b. What value did News Corp. place on the control of Dow Jones and Company?
Explanation / Answer
a)
Compute the cost of this acquisition to the shareholders of N Corp.
Cost of Acquisition = Outstanding shares * Purchase price * Interest bearing liabilities
= 82 million * $60 *1.46 billion
= 49.2 billion * 1.46 billion
= 71.832 billions
b)
The value of control is the difference between the bid price and the price immediately prior to the bid, times the number of shares outstanding, or $2.21 billion ($60-$33)*82million shares.
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