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Clarkson is planning on merging with Dixon. Clarkson currently has 200,000 shares of stock outstanding at...

Clarkson is planning on merging with Dixon. Clarkson currently has 200,000 shares of stock outstanding at a market price of $

Clarkson is planning on merging with Dixon. Clarkson currently has 200,000 shares of stock outstanding at a market price of $49.80 a share. Dixon has 82,000 shares outstanding at a price of $34.80 a share. The merger will create $432,000 of synergy. How many of its shares should Clarkson offer in exchange for all of Dixonâ s share if it wants its acquisition cost to be $2,620,000? 51,206 49,315 48,447 50,121 47,854
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ReportAnswer #1

Net present value = (Market value of target firm + Synergy - acquisition cost

= (82,000 * $34.80) + $432,000 - $2,620,000

= $665,600

Share price = ((200,000 * $49.80) + $665,600) / 200,000 = $53.128

Number of shares offered = Acquisition cost / share price

= $2,620,000 / $53.128

= 49,315

Hence, Number of shares offered = 49,315

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