Andover Bank is planning to purchase Berkley Bank.The current market value of Andover's stock is $55 per share while that of Berkley's stock is $15 per share.Andover plans to pay Berkley's stockholders a $5 bonus per share.Currently,Andover has 100,000 shares outstanding and earnings per share of $12,while Berkley has 50,000 shares outstanding and earnings per share of $5.What is the merger premium that Andover will end up paying on Berkley's shares if the merger goes through?

Question

Quizplus · Accepted Answer

The merger premium is calculated as the bonus per share divided by the current market value of Berkley's stock. The bonus is $5, and Berkley's stock is $15, so the premium is ($5 / $15) * 100% = 33.33%. However, the total price paid per share is $20 ($15 + $5), which is a 133% increase over the original $15 price.

Andover Bank Is Planning to Purchase Berkley Bank