Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 28, Problem 14P

Let’s reconsider part (b) of Problem 99. The actual premium that your company will pay for TargetCo will not be 20%, because on the announcement the target price will go up and your price will go down to reflect the fact that you are willing to pay a premium for TargetCo. Assume that the takeover will occur with certainty and all market participants know this on the announcement of the takeover.

  1. a. What is the price per share of the combined corporation immediately after the merger is completed?
  2. b. What is the price of your company immediately after the announcement?
  3. c. What is the price of TargetCo immediately after the announcement?
  4. d. What is the actual premium your company will pay?
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