Acquiring Corp agrees to buy 100% of the outstanding shares of Target Corp in a share for share exchange.How would Acquiring Corp determine how many new share of its
Stock it would have to issue?
A) Multiply the purchase price premium paid for Target's stock by the number of shares of target stock outstanding.
B) Multiply the share exchange ratio by the number of Acquirer shares outstanding.
C) Add the number of Acquirer and Target shares outstanding
D) Multiply the share exchange ratio by the number of Target shares outstanding.
E) Divide the share exchange ratio by the purchase price premium

Question

Quizplus · Accepted Answer

To determine the number of new shares of Acquirer's stock that it would have to issue, the Acquirer would need to multiply the share exchange ratio by the number of Target shares outstanding. This is because in a share for share exchange, the Acquirer is exchanging its own shares for the shares of the target company. Therefore, the share exchange ratio determines how many shares of the Acquirer's stock each Target shareholder will receive in exchange for their Target shares. Multiplying this by the number of Target shares outstanding gives the total number of Acquirer shares that will need to be issued to complete the acquisition.

Acquiring Corp Agrees to Buy 100% of the Outstanding Shares