Case 3: Mergers and Acquisitions. Alpha Inc.'s stock price is $40, and the firm has 4 million shares outstanding. You are confident that, if you take it over and replace the managers, you can improve its performance and increase its value. However, Alpha Inc. has a poison pill with a 20% trigger. As a consequence, in the event that someone buys more than 20% of the capital without management approval, it would be triggered, and all Alpha Inc.'s shareholders- other than the acquirer-would be offered to buy one new share in Alpha for each share they already own, at a 50% discount. If the price remains at $40 while you are acquiring shares in your takeover attempt, and the management of the company decides to resist your buyout attempt when you pass the 20% threshold of ownership: a. How many new shares will be issued and at what price? b. What will happen to your percentage ownership of Alpha Inc.? c. What will happen to the price of your shares of Alpha Inc.? d. Do you lose or gain from triggering the poison pill? If you lose, where does the loss go (who benefits)? If you gain, from where does the gain come (who loses)?.
Case 3: Mergers and Acquisitions. Alpha Inc.'s stock price is $40, and the firm has 4 million shares outstanding. You are confident that, if you take it over and replace the managers, you can improve its performance and increase its value. However, Alpha Inc. has a poison pill with a 20% trigger. As a consequence, in the event that someone buys more than 20% of the capital without management approval, it would be triggered, and all Alpha Inc.'s shareholders- other than the acquirer-would be offered to buy one new share in Alpha for each share they already own, at a 50% discount. If the price remains at $40 while you are acquiring shares in your takeover attempt, and the management of the company decides to resist your buyout attempt when you pass the 20% threshold of ownership: a. How many new shares will be issued and at what price? b. What will happen to your percentage ownership of Alpha Inc.? c. What will happen to the price of your shares of Alpha Inc.? d. Do you lose or gain from triggering the poison pill? If you lose, where does the loss go (who benefits)? If you gain, from where does the gain come (who loses)?.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Case 3: Mergers and Acquisitions. Alpha Inc.'s stock price is $40, and the firm has 4 million shares outstanding. You are confident that, if you take it over and replace the managers, you can improve its performance and increase its value. However, Alpha Inc. has a poison pill with a 20% trigger. As a consequence, in the event that someone buys more than 20% of the capital without management approval, it would be triggered, and all Alpha Inc.'s shareholders- other than the acquirer-would be offered to buy one new share in Alpha for each share they already own, at a 50% discount. If the price remains at $40 while you are acquiring shares in your takeover attempt, and the management of the company decides to resist your buyout attempt when you pass the 20% threshold of ownership: a. How many new shares will be issued and at what price? b. What will happen to your percentage ownership of Alpha Inc.? c. What will happen to the price of your shares of Alpha Inc.? d. Do you lose or gain from triggering the poison pill? If you lose, where does the loss go (who benefits)? If you gain, from where does the gain come (who loses)?.
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