Bob's Bait Shop has 1,200 shares outstanding at a market price per share of $13. Ed's Fish Shop has 2,800 shares outstanding at a market price of $29 a share. Neither firm has any debt. Ed's Fish Shop is acquiring Bob's Bait Shop for $19,500 in cash. What is the merger premium per share?

Question

Quizplus · Accepted Answer

The merger premium per share is calculated as the difference between the price paid per share in the acquisition and the pre-merger market price per share. First, calculate the total market value of Bob's Bait Shop: 1,200 shares * $13/share = $15,600. The acquisition price is $19,500, so the total premium paid is $19,500 - $15,600 = $3,900. The premium per share is then $3,900 / 1,200 shares = $3.25.

Bob's Bait Shop Has 1,200 Shares Outstanding at a Market