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You work for a leveraged buyout firm and are evaluating a potential buyout of Associated Steel.Associated Steel's stock price is $15 and it has 10 million shares outstanding.You believe that if you buy the company and replace its management,its value will increase by 50%.You are planning on doing a leveraged buyout of Associated Steel,and will offer $20 per share for control of the company.
-Assuming you get 50% control of Associated Steel,then the price of the non-tendered shares will be closest to:
A)$12.50.
B)$15.00.
C)$17.50.
D)$20.00.

Question

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The correct answer is A.The price of the non-tendered shares will be closest to $12.50. This is because the price of the non-tendered shares will be equal to the value of the company divided by the number of shares outstanding. The value of the company will be equal to the offer price per share multiplied by the number of shares outstanding. The offer price per share is $20 and the number of shares outstanding is 10 million. Therefore, the value of the company will be $200 million. The number of shares outstanding will remain the same after the buyout, so the price of the non-tendered shares will be $200 million divided by 10 million, which is $12.50.

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