The merger price at which the shareholders of Hybrid would be agreed is 68.75 per share. Total number of shares outstanding of Hybrid Golf 8 million. It means Birdie has to pay $550 million (68.75*8 million) to the shareholders of Hybrid. The market valuation of Hybrid shows that the value of the firm is equal to $1175.03 million. [pic]
For the calculation of the firm value the WACC is used by considering current debt equity ration ( .50). WACC is calculated as follow – [pic]
The free cash flows of the firm would be discounted on the basis of this rate. The valuation and current merger price shows that Birdie should precede with the merger as it would be beneficial for the company to increase its profitability in long term. The expected value of the firm is 900 million in five years that is also less than the calculated value. It depicts the merger proceed would be beneficial for Birdie.
The highest price per share depends on the actual value of a firm. The value of the firm is $1175.03 million while it is expected that the firm would have a debt of 300 million in next five years. The net value of the equity would be 875.03 million (1175.03-300). The number of shares in Hybrid is 8 million. The highest price per share that birdie should willing to pay for Hybrid will be : [pic]
The highest price per share that could be offered by Birdie to Hybrid is $109.38 per share.
The exchange ratio for the merger would be calculated on the basis of following formula– Stock exchange ratio = Offer price/Share price of acquirer
Offer price or original merger price = $68.75 per share
Share price of Birdie = $94 per share
Stock Exchange ratio = 68.75/94
= 0.73 shares
Above ratio depicts that Birdie would pay 0.73 shares for each share of Hybrid. The total number of shares outstanding in Hybrid is 8 million. It means that Birdie have to pay 5.84 million shares to shareholders of...