Suppose LetsMerge Co. is also targeting another company, YesYou Inc., which has

Question

Suppose LetsMerge Co. is also targeting another company, YesYou Inc., which has a current value of $79.80 million. Analysts conduct due diligence and estimate the post-merger value of YesYou's equity to be $87.78 million. YesYou has 30.40 million shares outstanding. If the merger analysts expect the synergies to be realized, the maximum price per share that LetsMerge is likely to pay if it is making a cash offer for YesYou Inc. is $2.89 per share LetsMerge has 45.60 million shares outstanding that are trading at $7.60 per share. Suppose LetsMerge makes an offer to acquire YesYou at $2.31 per share. If the deal goes through, the post-merger value of YesYou to the LetsMerge shareholders is The total value of the merged company's equity will be If LetsMerge wanted to issue stock for this merger, how many new shares should LetsMerge issue so that YesYou's former stockholders will own 16.85% of the shares of the merged company? O 11.09 million shares O 5.54 million shares O 7.39 million shares O 9.24 million shares

Explanation / Answer

1. Maximum price per share = $87.78 million/30.4 million shares

= $2.89 per share

2. Post merger value of YesYou to LetsMerge shareholders = 30.4 million shares*$2.31 per share

= 70.224 million (or $70.22 million after rounding off to 2 decimal places)

Total value of merged company’s equity = (45.6 million*$7.6)+70.224 million

= $416.784 million (or $416.78 million after rounding off to 2 decimal places)

3. Total value of merged entity = $416.784 million

YesYou’s shareholders will own 16.85% shares. 16.85% of $416.784 million = $70.2281 million

New shares to be issued = $70.2281 million/$7.60

= 9.24 million shares

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