a.
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.
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.
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.
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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Chapter 28 Solutions
EBK CORPORATE FINANCE
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