RAJ Inc. would like to issue one million common shares and has an unpublished reserve price of $4.75. The company's investment dealer received the following response to its tender offer. 200,000 shares could be sold at $5.45, 350,000 at $5.25, 350,000 at $5.05, 600,000 at $4.90, 525,000 at $4.75, 725,000 at $4.50 and 700,000 at $4.25. What is the resulting striking price and the distribution of shares to each shareholder?

Question

Quizplus · Accepted Answer

The striking price is determined by the highest price at which all the shares can be sold. By adding the quantities from the highest price downwards, we reach the one million shares mark at $4.90 (200,000 + 350,000 + 350,000 + 100,000 out of 600,000 at $4.90). Therefore, the striking price is $4.90, and since 1,000,000 out of 1,500,000 shares available at or above $4.90 are sold, the allocation ratio is 2 for each 3 tendered.

RAJ Inc Would Like to Issue One Million Common Shares and and Has