HFA Inc.’s stock price is $15 per share and there are 5 million shares outstandi

Question

HFA Inc.’s stock price is $15 per share and there are 5 million shares outstanding. Assume that HFA has a poison pill in place with a 15% trigger. Trigger will allow all existing shareholders (except for potential acquirer) will be able to purchase additional share for each share they own at 20% discount. If HFA decides to resist a buyout attempt, and acquirer crosses 15% threshold position (assume the price stays at $15 as acquirer accumulates shares):

- How many new shares will be issued? What will be the price of these additional shares?

- What will be percentage stake of acquirer after the offer of additional shares?

- What will be the new price of HFA after this dilution?

Explanation / Answer

A) Trigger is 15% hence, new shares to be issued = 5000,000-(5000,000*15%)

=4250,000 Shares at 12$(15-20%)

B) % stake of acquire = no of shares held by acquirer/ total no of shares

=(5000000*15%) / (5000,000+4250,000)

=750,000/9250000

=8.108%

C) Price of shares after dilution = (5000,000*15) + (4250000*12)/(5000,000+4250000)

=126000,000/9250000

=13.62$

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