Page 60 - FINAL CFA II SLIDES JUNE 2019 DAY 6

READING 25: MERGERS AND ACQUISITIONS

MODULE 25.4: BID EVALUATION

This means the actual value of each share given to Kazmaier’s shareholders is $36.70, and the actual price paid for the target is:

P = (N × P ) = (18 × $36.70) = $660.60
T
AT
Kazmaier’s gain in the merger as the target is:
Gain = TP = P − V = $660.60 − $576 = $84.60
T
T
T
This represents the takeover premium in the transaction.
Gain to acquirer: Giant Foods’ gain in the merger as the acquirer is:
Gain = S − TP = S − (P − V ) = $120 − ($660.60 − $576) = $35.4 million
T
A
T
This equals the value of synergies in the deal less the takeover premium paid to Kazmaier’s shareholders.
The examples show that the gain to Giant Foods’ shareholders was $48 million in the all cash deal, but only $35.4 million in the stock deal. The dilution
from the stock offer effectively reduced the acquirer’s gains because the target was able to share in the risk and reward of the deal as a result of receiving
shares.