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Question - The Bidder has offered 1 bidder share for two target shares. You observe the following balance sheet for the bidder and target:
Target
Bidder
Assets
3,000,000
15,000,000
Debt
1,200,000
8,000,000
Equity
1,800,000
7,000,000
Shares outstanding
90,000
250,000
Current price per share
$15
$35
Market value of assets (replacement cost)
$1,500,000
$17,000,000
Required -
a) Describe two different roes an investment bank may play in this type of transaction (ie. Buy-side, sell-side, fairness opinion)
b) Calculate the Tobin's Q for each firm. Which firm has the most potential growth options? Explain your reasoning.
c) What premium ($ and %) has the bidder offered for the target?
d) Is the transaction likely to be taxable for the target shareholders? Why or why not?
e) Post acquisition, what fraction of the combined firm will be held by the target shareholders?
f) Prepare the balance sheet for the combined company assuming purchase accounting.
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