Question

Please answer all parts of question

BAD Company's stock price is $35, and the firm has 4 million shares outstanding. You believe you can increase the company's value if you buy it and replace the management. Assume that BAD has a poison pill with a 25% trigger. If triggered, all BAD's shareholders—other than the acquirer—will be able to buy one new share in BAD for each share they own at a 80% discount. Assume that the price remains at $35 while you are acquiring your shares. If BAD's management decides to resist your buyout attempt, and you cross the 25% threshold of ownership: a. How many new shares will be issued and at what price? b. What will happen to your percentage ownership of BAD? c. What will happen to the price of your shares of BAD? d. Do you lose or gain from triggering the poison pill? If you lose, where does the loss go (who benefits)? If you gain, from where does the gain come (who loses)? a. How many new shares will be issued and at what price? The number of new shares issued is . (Round to the nearest integer.)

Answer 1

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v 1* 11:55 ENG 16-03-2070 24 - X fic MMI MN MK ML MO MP MO MR MS MT MU - MT133 - 113 114 115 116 117 a 118 119 IF POISON PILL IS TRIGGERED YOU WILL OWN = 1000000 SHARES (4 MILLION X 25%) OTHER SHARES = 3000000 SHARES OTHER SHAREHOLDERS WILL PURCHASE 3000000 SHARES MORE AT A PRICE OF 7 (80% DISCOUNT TO CURRENT PRICE) 120 121 3000000 SO NO OF SHARES ISSUED = PRICE = 124 125 126 b 127 AS YOU OWN 1000000 SHARES AND OTHER SHAREHOLDERS OWN = 3000000 + 3000000 = 6000000 SHARES YOUR OWNERSHIP = 1000000/(1000000 + 6000000) = 14.29% 128 129 130 C 131 MARKET PRICE OF ALL SHARES 4000000 X 35 = 3000000 X 7 = 132 140000000 21000000 161000000 134 135 PRICE PER SHARE = 23.00 [=161000000/7000000] 136 ... STOCK DIV NAV HEDGE FUND MF EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS price quote LEVER ... :

? 1x ENG 11:55 16-03-2020 24 MS146 - X Fax MK MLMMMN MO MPMQ MR MS MT MUA 136 137 d 138 139 140 YOU WILL LOOSE AS YOU PURCHASED SHARES AT 35 AND NOW PRICE IS 23 SHAREHOLDERS WILL GAIN AS THEIR PURCHASE PRICE = (35 + 7)/2 = 21 AND NOW PRICE = 23 AMOUNT THAT YOU LOSE AMOUNT THAT SHAREHOLDERS GAIN 12000000 [=(35-23)* 1000000] 12000000 [=(23-21)*6000000] 148 149 150 156 157 158 159 ... STOCK DIV NAV HEDGE FUND MF EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS price quote LEVER ... 1