Wildcat industries has 1,750 shares outstanding at a market price of $40 per sha
ID: 2801679 • Letter: W
Question
Wildcat industries has 1,750 shares outstanding at a market price of $40 per
share. Bulldog Oil has 2,000 shares outstanding at a market price of $10 per share.
Wildcat plans to merge with Bulldog and believes the merger will create $10,000 in
synergies. KNOW THE ANSWER JUST DO NOT KNOW HOW TO GET IT
A) If the bargaining power is equally split between the two firms, what will the offer
price per share be if Wildcat offers cash? ($12.50)
B) How many shares in total of the bidder will be offered if the offer is in stock?
(583)
Explanation / Answer
1)Total Market Cap for Wildcat Industries = $1,750*40 = $70,000
2)Total Market Cap for BullDog = $2,000*10 = $20,000
Market Cap after the merger of both Companies = $70k + $20K = $90K
It is given that the merger will create $10,000 in synergies.
So, New Market Cap can be = $100,000
A) If the bargaining power is equally split between the two firms, what will the offer
price per share be if Wildcat offers cash?
Solution) It is given that the merger advantage comes equally from both the firms.It means that after merger new extra Market Cap created equally $10,000/2 = $5,000 will come from both the firms.
Therefore, Bulldog expected M-Cap will be = $20,000 + $5,000 = $25,000
Total No. of outstanding shares remains same(Bulldog Oil) = 2000
Price per share for Bulldog Oil = $25,000/2000 = $12.50 per share.(The offer price per share be if Wildcat offers cash).
B) How many shares in total of the bidder will be offered if the offer is in stock?
Wildcraft expected M-Cap after merger will be = $70,000 + $5,000 = $75,000
Total No. of outstanding shares remains same(Wildcat Ind.) = 1,750
New share price for Wildcat Indust. after merger = $(75,000/1,750) = $42.85714 per share
Total number of shares will be offered by the Wildcat industries to Bulldog Oil = New M-Cap of Bulldog/(Wildcat's new share price) = ($25,000)/($42.85714) = 583(Approx).
Hopefully i am able to resolve your query.
Thanks
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