In a Celebrated Takeover Case, an Investor with Significant Wealth

question 232

Essay

In a celebrated takeover case, an investor with significant wealth made a public offer to purchase
the stock of one of the major automakers for $55 per share when that same stock was trading at
only $39 per share. Consider each of the following questions in turn:
a. If the market believes the acquisition will occur what do you think the share price will be shortly
after the announcement? Why? If you were a shareholder would you sell your stock for $55 if you
could? Why or why not?
b. If the market believes the acquisition will not be completed, what do you think the share price will
be shortly after the announcement? Why?
c. In this case, the acquisition attempt was effectively stopped, partially because of a poison pill
defense in place to protect existing stockholders. The share price after the acquisition failed settled
at around $47 per share. Did the defensive tactic protect shareholders in this case?

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Definitions:

Property, Plant, Equipment

Long-term assets held for business use and not intended for resale, such as buildings, machinery, and vehicles, subject to depreciation.

Depreciated

A decrease in the value of an asset over time due to wear and tear or obsolescence.

Operating Efficiency

A measure of how effectively a company uses its resources to generate profits.

Capital Expenditures

Funds used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings.