Calculate the equity value in a fixed exchange ratio structure given the following information.

Transaction Details:
TargetCo's shareholders will receive one share of AcquirerCo's common stock for every four shares of TargetCo's common stock.AcquirerCo's share price prior to the announcement was $20.00.TargetCo has 25 million shares outstanding.

Question

Quizplus · Accepted Answer

To calculate the equity value in a fixed exchange ratio structure, we need to determine the number of shares offered by AcquirerCo and then multiply it by the pre-announcement share price of AcquirerCo.

Here, we know that TargetCo's shareholders will receive one share of AcquirerCo's common stock for every four shares of TargetCo's common stock. As there are 25 million shares outstanding for TargetCo, AcquirerCo will need to issue 6.25 million shares (25 million / 4) to acquire TargetCo.

At a pre-announcement share price of $20.00, the equity value of AcquirerCo's shares is $20.00 x 6.25 million = $125.0mm.

Therefore, the correct answer is A) $125.0mm.

Calculate the Equity Value in a Fixed Exchange Ratio Structure