TJ's and Corner Grocery are all-equity firms. TJ's has 2,500 shares outstanding at a market price of $16.70 a share. Corner Grocery has 3,000 shares outstanding at a price of $22.50 a share. Corner Grocery is acquiring TJ's for $45,000 in cash. What is the merger premium per share?
A) $0
B) $1.30
C) $1.11
D) $1.28
E) $.32

Question

Quizplus · Accepted Answer

The merger premium per share is calculated as the difference between the price paid per share and the pre-merger market price per share. The total value paid for TJ's is $45,000. With 2,500 shares outstanding, the price paid per share is $45,000 / 2,500 = $18. The pre-merger market price per share of TJ's is $16.70. Therefore, the merger premium per share is $18 - $16.70 = $1.30.

TJ's and Corner Grocery Are All-Equity Firms