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TJ's and Corner Grocery are all-equity firms. TJ's has 2,500 shares outstanding at a market price of $16.70 a share. Corner Grocery has 3,000 shares outstanding at a price of $22.50 a share. Corner Grocery is acquiring TJ's for $45,000 in cash. What is the merger premium per share?

User Shanee
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Answer:

$1.30

Step-by-step explanation:

The valuation of TJ's = price per share * number of shares in issue

= $16.70 * 2,500 shares = $41,750.

Corner Grocery offer for TJ's of $45,000, and obviously a premium over the market value of TJ's at $41,750.

The price per share of Corner Grocery's offer =
(45,000)/(2,500) = $18 per share.

That is, offer value divided by the number of shares to be acquired.

Therefore, merger premium per share = offer price, less market price

= $18 - $16.70.

= $1.30

User Qrchack
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