Question

Pearl, Incorporated, has offered $446 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $411 million as an independent operation. If the merger makes economic sense for Pearl, what is the minimum estimated value of the synergistic benefits from the merger? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Answer 1

The minimum estimated value of the synergistic benefits from the merger between Pearl, Incorporated, and Jam Corporation is $35 million, which is the difference between Pearl's $446 million offer and Jam's independent value of $411 million.

Step-by-step explanation:

The question focuses on determining the minimum estimated value of the synergistic benefits from the merger between Pearl, Incorporated, and Jam Corporation. Pearl has offered $446 million for the common stock in Jam Corporation, which is worth $411 million as an independent operation. The estimated value of the synergistic benefits is therefore the difference between the offer price and the independent operation value of Jam Corporation.

To calculate this, we simply subtract the independent value from the offer price: $446 million - $411 million resulting in an estimated value of $35 million. This is the minimum expected synergistic benefit Pearl anticipates to justify the premium they are paying for Jam Corporation. These benefits could arise from various factors including cost savings, revenue enhancement, or other efficiencies that are expected to be achieved through the merger. Thus, the synergistic benefits would have to be at least $35 million for the merger to make economic sense for Pearl from an investment standpoint.