Acquisition of TGT Inc by ACQ Corp

Question

ACQ Corp. is analyzing the possible acquisition of TGT Inc. ACQ estimates the acquisition will increase its total after-tax annual cash flows by $7.6 million indefinitely. The appropriate discount rate for the incremental cash flows is 10 percent. The financial analyst of ACQ has collected the following information:

 

ACQ

TGT

Pre-merger stock price

$42.00

$20.00

Number of shares outstanding

12 million

8 million

ACQ and TGT have agreed on a transaction value of $24 per share for TGT’s stock, but are negotiating methods of payment: an all-cash offer, and a stock exchange offer.

Assuming neither company has debt, calculate the followings:

a) Synergy and takeover premium for both of the methods.

b) NPV for each method.

c) Assume the synergy is re-estimated to be $80million based on the recent market information. What is the maximum cash price per share that could be paid for AWA?

d) Assume the synergy remains to be $80million. Calculate the takeover premium for a cash and stock exchange offer ($6.5 cash per share of TGT plus 0.35 shares of ACQ per share of TGT).

Summary

This question belongs to finance and discusses about analysis of possible acquisition of TGT Inc. by ACQ Corp.

Word count: Excel Format

 

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