Weston Bakery and Early's Bakery are all-equity firms. Weston's has 1,200 shares outstanding at a market price of $16 a share. Early's has 1,500 shares outstanding at a price of $27 a share. Early's is acquiring Weston's for $24,000 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 acquisition price per share and the pre-merger market price per share. Weston's pre-merger market value is 1,200 shares * $16 = $19,200. The acquisition price is $24,000, so the total premium paid is $24,000 - $19,200 = $4,800. The premium per share is $4,800 / 1,200 shares = $4.

Weston Bakery and Early's Bakery Are All-Equity Firms