Bavarian-Bavarian Merger
Bavarian Brew is planning on acquiring Bavarian Sausage in a pure exchange merger. Bavarian Brew’s stock is currently trading at $45 and they set the exchange ratio at 1.80. Bavarian Sausage has 75 million shares outstanding which are currently trading at $23 a share.

Twelve months after the merger Bavarian Brew’s stock price drops to $37.

-If you owned 200 shares of Bavarian Sausage what would be the control premium?

Question

Bavarian-Bavarian Merger
Bavarian Brew is planning on acquiring Bavarian Sausage in a pure exchange merger. Bavarian Brew’s stock is currently trading at $45 and they set the exchange ratio at 1.80. Bavarian Sausage has 75 million shares outstanding which are currently trading at $23 a share.

Twelve months after the merger Bavarian Brew’s stock price drops to $37.

-If you owned 200 shares of Bavarian Sausage what would be the control premium?

Quizplus · Accepted Answer

old 200(23)= 4600
new: 200(1.8)45 = 16,200
control premium: (16200-4600)/4600 = 2.52

Bavarian-Bavarian Merger Bavarian Brew Is Planning on Acquiring Bavarian Sausage in a in a Pure