Company T has 1,000 million shares in issue with a current share price of $10 each.
Company V has 300 million shares in issue with a current share price of $5 each.
Company T is considering acquiring Company V.
Total synergy gains of $100 million have been estimated.
The purchase of Company V’s shares would be by cash at a 10% premium above the current share price.
In seeking approval for the acquisition, the likely reaction from T’s shareholders will be:
A . accepted as there is $100 million of synergy which will all go to T’s shareholders.
B . accepted as there will be an increase in the value of the business of $1,500 million.
C . rejected as T’s shareholders will see a decrease in their wealth overall of $50 million.
D . rejected as T’s shareholders will not be willing to pay more than $1,500 million for
Answer: C