1. You just started at a new position at a large investment bank. You have been

Question

1. You just started at a new position at a large investment bank. You have been assigned to help a senior analyst, Ms. Jones, on a Dutch Auction of shares for Thornton &Danaher; Inc. The equity of the firm is currently closely held by the founding families and the senior managers, so there is no available market price. They are hoping to raise about $270,000,000. This represents about 30% of the firm's current equity value. Ms. Jones has estimated that the firm equity is currently worth about $975,000,000 (S270,000,000 is about 30%). Of course, this is just an estimate, and the amount raised will depend on what the market will bear. They have decided to auction 6,120,000 shares, which will hopefully sell for about $45 per share. Thornton & Danaher will receive the proceeds from the sale of 6,000,000 of the shares, and your investment bank will receive the proceeds from the remaining 120,000 shares (a 2% commission). Your firm pitched the issue to several large private equity clients. Fourteen sealed bids were submitted, and you have sorted them by bid price. The results are shown below Bidder Price Shares 57.43 475,000 $56.87 480,000 $56.12 520,000 $52.93 580,000 $52.73 730,000 $51.37 890,000 $49.12 1,000,000 47.54 1,250,000 $46.37 800,000 $45.42 1,175,000 44.14 1,200,000 $43.52 1,350,000 M $41.73 1,700,000 N $40.28 1,450,000 What marginal price will the 6,120,000 shares of Thornton& Danaher sell at in the Dutch Auction? Also, calculate the pro rata portion of shares that the winning bidders will receive for the number of shares they bid. How much money will Thornton & Danaher receive from the auction? What will your investment bank receive?

Explanation / Answer

Working Notes

PART - A

Marginal Price = Total Amount / No of Shares

=310,693,600/6,000,000

=51.78

PART - B

as per working notes above Bider A to H full shares received but I only 75000 shares allotted.

PART - C

Total amount Received Thornton & Danher =310,693,600(as per Working Notes)

PART - D

Investment bank Received = 120000*47.54 ( Bidder I)

=5,704,800

Bidder price Shares Amount A 57.43 475000 27279250 B 56.87 480000 27297600 C 56.12 520000 29182400 D 52.93 580000 30699400 E 52.73 730000 38492900 F 51.37 890000 45719300 G 49.12 1000000 49120000 H 47.54 1250000 59425000 I 46.37 75000 3477750 TOTAL 6,000,000 310,693,600

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

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