Rearden Metal has earnings per share of $3. It has 20 million shares outstanding and is trading at $10
per share. Rearden Metal is thinking of buying Associated Steel, which has earnings per share of $1.00, 10
million shares outstanding, and a price per share of $10. Rearden Metal will pay for Associated Steel by
issuing new shares. There are no expected synergies from the transaction. If Rearden offers an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 30% premium to buy Associated Steel, then what will be the new value of the target?
A. 530 million
B. 130 million
C. 230 million
D. 150 million
Current price of Associated steel = 10
30% premium to current price = 10*(1+0.30) = 13 per share
value of Associated steel = 10 million shares x 13 = 130 million
Answer : B : 130 million (Thumbs up please)
Rearden Metal has earnings per share of $3. It has 20 million shares outstanding and is...