Did the acquirer or the target get the most value

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Reference no: EM132800523

Question - Large Co, an all-equity firm with 200 million shares outstanding and $1,000 million of equity(share price $5), wants to buy Target Co. Target Co. is an all-equity $100 million firm with 2 million shares outstanding (Share price $50). Together they will generate synergy values of $100 million.

After negotiations, Large Co. and Target Co. agree to allocate the synergy value equally. Large Co. will compensate Target Co. shareholders with 50% cash and 50% shares.

Assuming efficient markets, prepare the market value balance sheet after acquisition is complete. Provide the details.

Calculate the number of Large Co shares that Target Co shareholders will receive in exchange for their Target Co shares.

Assume the market values this merger differently than the firms value this merger. Upon announcement the shares of both Large Co. and Target Co. increased. Large Co. increased 3% and Target Co. increased 20%. Using the share price information, describe how the market views the merger. Based on the market reaction, did the acquirer or the target get the most value?

Reference no: EM132800523

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