Stock market is attaching to synergies from merger

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Reference no: EM133638029

Question

In June 2023, Megabus announced that it was acquiring its smaller rival Minibus, citing operational synergies as the reason for the merger. On the announcement of the merger, Megabus' stock price dropped from $54.80 to $52.50 while Minibus price went up from $31 to $37.50. At the time of the announcement, Megabus had 400 million shares outstanding and Minibus had 50 million shares outstanding. Neither firm has any debt.

Using the stock price data above, estimate the value that the stock market is attaching to synergies from this merger. Is the market expecting the merger to be value enhancing (i.e., are merger synergies expected to be positive?

Reference no: EM133638029

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