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Firm a Wants to Merge with fiRm B and as an Acquiring

question 55

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Firm A wants to merge with firm B and as an acquiring firm is willing to pay a premium.Firm A's equity is currently worth EUR100 million, firm B's equity is worth EUR20 million.Firm B has 1,000,000 shares outstanding.Synergy gains are estimated to be around 10%.What is the maximum should Firm A offer to pay firm B's shares?


Definitions:

Perfect Information

A situation in decision theory and economics where all parties have full and identical information about all aspects of the situation.

Car Audio Store

A retail business specializing in the sale of audio systems and accessories for vehicles.

Expected Value

The predicted value of a variable, computed as the sum of all possible values each multiplied by the probability of its occurrence.

Payoffs

The outcomes or returns from a particular action or investment.

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