Question

In the fall of 2009, Kraft Foods attempted to buy Cadbury plc. Data for each of the two companies are given in the table. Both companies are all equity financed. The CEO of Kraft Foods estimated that merger synergies had a present value of $12 billion. Kraft offered each Cadbury shareholder $24.049 cash. Answer the questions below using the data in the table. Kraft Value of Firm Shares Outstanding Stock Price $50B 1.34B $37.31 Cadbury $15B 1.08B $13.89 Part A. What is the value of the merged firm? Value of merged firm = $ B. (Enter your number in billions of dollars and round your answer to two decimals.) Part B What is the NPV of the offer to Kraft Shareholders? NPV to Kraft = $ B. (Enter your number in billions of dollars and round your answer to two decimals.) Part C What is the stock price for Kraft after the merger? Kraft Stock Price = $ . (Round your answer to two decimals.)

Answer 1

Answer A)

Value after merger = Value of kraft + Value of Cadbury + Synergy

= 50 + 15 + 12

= 77 B

Answer B)   

NPV = Present Value of Value Gained - Cash Paid to Shareholders of Cadbury

= ( 15B + 12B ) - (24.049 * 1.08)

= 27B - 25.97292B

= 1.02708 B

Answer C)

Stock Price of Kraft = Value after merger / No of shares outstanding

= 77 B / 1.34 B

= $ 57.46

Since the Shareholders are paid in cash , the no of shares of Kraft will be same as before.

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