Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Question

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Answer 1

Question

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

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Suppose you own stock in a company. The current price per share is P25.00. Another company has just announced that it wants to buy your company and will pay P35.00 per share to acquire all the outstanding stock. Your company’s management immediately begins fighting off this hostile bid. Is management acting in the shareholders’ best interests? Why or why not?

Alpha Inc.'s stock price is $40, and the firm has 4 million shares outstanding. You are confident that, if youtake it over and replace the managers. vou can improve its pertormance 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: How many new shares will be issued and at what price?What will happen to your percentage ownership of Alpha inc.?What will happen to the price of your shares of Alpha Inc.?Do you lose or gain from triggering the poison pill? If you lose, where…

Answer 2

Question

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

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Answer 3

Question

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

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Answer 4

Question

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

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Answer 5

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 6

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 7

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 8

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 9

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 10

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 11

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 12

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 13

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 14

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Answer 15

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Answer 16

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Answer 17

Ch. 28.1 - Prob. 1CC Ch. 28.1 - Prob. 2CC Ch. 28.2 - On average, what happens to the target share price...Ch. 28.2 - Prob. 2CC Ch. 28.3 - What are the reasons most often cited for a...Ch. 28.3 - Prob. 2CC Ch. 28.4 - Prob. 1CC Ch. 28.4 - What do risk arbitrageurs do?Ch. 28.5 - Prob. 1CC Ch. 28.5 - Prob. 2CC

Solution Summary: The author explains that BAD Company's stock price is 20 and the firm has 2 million shares outstanding, and an acquiring company believes that its value can be increased if the management is replaced.

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Chapter 28 Solutions