BAD? Company\'s stock price is $20?, and it has 4.0 million shares outstanding.

Question

BAD? Company's stock price is $20?, and it has 4.0 million shares outstanding. You believe that if you buy the company and replace its? management, its value will increase by 21%. Assume that BAD has a poison pill with a 15% trigger. If? triggered, all target shareholders long dash —other than the acquirer long dash —will be able to buy one new share in BAD for each share they own at a 75% discount. Assume that the price remains at $20 while you are acquiring your shares. If? BAD's management decides to resist your buyout? attempt, and you cross the 15% threshold of? ownership:

a. How many new shares will be issued and at what? price? # of new shares is _______________(round to nearest interger) at $_____________ per share. (round to nearest cent)

b. What will happen to your percentage ownership of? BAD? The percentage ownership will be ________%. (round to two decimal places).

c. What will happen to the price of your shares of? BAD? The new stock price will be ?$________ . ?(Round to two decimal? places.)

d. Do you lose or gain from triggering the poison? pill? The gain? or (loss) is ?$_________ . ?(Round to the nearest? dollar, positive if? gain, negative if? loss, zero if? neither.)

If you? lose, where does the loss go? (who benefits)? If you? gain, where does the gain come from? (who loses)? Every other shareholder in the target firm gains ?$_______per share.???(Round to the nearest? cent.)

Explanation / Answer

a) # of Shares Outstanding 4,000,000.00 Shares # of Shares bought if Iyou trigger the poison pill = 21% x 4,000,000 840,000.00 Shares # of shares issued = 4,000,000 - 840,000 3,160,000.00 Shares Shares will be issued at $20 x 75% $15.00 Per share b) # of Shares Outstanding after new issue = 4,000,000 + 3,160,000 7,160,000.00 % of Ownership = 840,000/7,160,000 11.73% c) Market Value of Shares = (4,000,000 x $20) + (3,160,000 x $15) $127,400,000.00 Market price per share = $127,400,000/7,160,000 $17.79 Per share d) Loss = $17.79 - $20 -$2.21 Loss go to every other shareholder in the target firm Every other shareholder in the target firm gains = ($17.79 x 2) - ($20 +15) $0.59 Per share

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