Which of the following statements seems most correct about a firm that has made a cash tender offer for two million shares of ABC Corp.at a price of $20, which is $6 higher than ABC's current value?
A)The economic gain of the merger exceeds $40 million.
B)The economic gain of the merger exceeds $28 million.
C)The economic gain of the merger exceeds $12 million.
D)The economic gain of the merger would be zero after accounting for merger cost.

Question

Quizplus · Accepted Answer

The economic gain of the merger is calculated based on the premium paid over the current value of the shares. Since the offer is $6 higher than the current value for two million shares, the premium paid is $6 * 2 million = $12 million. This means the economic gain must exceed $12 million, assuming the premium reflects the anticipated value creation from the merger.

Which of the Following Statements Seems Most Correct About a Firm