The initial offer price for the target firm is defined as
A) The minimum price
B) The present value of the minimum price plus some fraction of the present value of net synergy
C) The present value of net synergy plus the current market value of the target firm
D) The maximum price less the minimum price
E) The maximum price less the present value of net synergy

Question

Quizplus · Accepted Answer

The initial offer price for the target firm should consider the present value of net synergy along with the minimum price to make a fair offer. This is because the acquirer needs to pay a premium to the target firm to acquire controlling ownership, and this premium should reflect the expected value from the synergies that would result from the merger or acquisition. The present value of net synergy is the expected value of synergies, adjusted for the time (by discounting it to present value). Thus, the present value of the minimum price plus some fraction of the present value of net synergy is an appropriate definition for the initial offer price.

The Initial Offer Price for the Target Firm Is Defined