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Firm "I'ahoo has attracted the attention of Firm llu"erizon because of its poor operating performance. Firm 'H'e rizon believes that the...

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which formula to use in this question a?

b) Compute ABC's gains if it accepts the all-cash offer of $17/share.

which formula to use in the question b?

屏幕快照 2018-08-11 上午12.33.16.png

Firm "I'ahoo has attracted the attention of Firm llu"erizon because of its poor operating performance. Firm
‘H'e rizon believes that the way Firm III'ahoo is managed is inefficient and that replacing the current management
team would increase the cash flow of "tahoo by Slfiflflfl every year up to perpetuity. Firm "I'ahoo has 5|],EIDD
shares outstanding and is not listed. Firm IInlrerizon has ESDJHJD shares outstanding that are currendy trading at
5dt'lfshare. Firm ll|.I"erizon already owns a 1'35 stake in Firm "(a hoo. Firm ‘I'ahoo has two other shareholders, ABC
and DEF. Both of them hold a 49.5% stake in Firm "I'ahoo. To change the management team, Firm "u'erizon
needs to get control of Firm 'fahoo Ii.e., at least 50% of shares]. Firm 1v’en‘zon hires Levan BrothersJ a
prestigious invesh'nent bank, to get advice on the transaction. Levan Brothers estimates that the value of one
share of Firm ‘I'ahoo under the current management team is $15 per share. They also advise Firm II..I’erizon to
pay a premium for the acquisition of II|"ahoo and to offer ABC and DEF $1? in cash for every share of Firm
‘tahoo. Fees charged by Levan Brothers to Finn ll|.I"erizon are $E,flflil Assume that there are no taxes and
markets are perfectly efficient. The appropriate annual discount rate is 10%. {Note that investment hookers
usually receive as success feeJ t.e., they are potd onl'y {f the transaction takes ptoce he. their fees are HGT o sunk
cost oner the fee is typically paid by the ocqutring firm.) a] Compute the maximum price per share that Firm 1Inl'erizon is willing to pay to acquire the remaining
99% of Firm 1I"ahc:uc:l via an all-cash offer. [4 marks]

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