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The NFF Corporation has announced plans to acquire LE Corporation
The NFF Corporation has announced plans to acquire LE Corporation. NFF is trading for $76 per? share, and LE is trading for $25 per? share, implying a premerger value of LE of approximately $5.9 billion. If the projected synergies are $0.99?billion, what is the maximum exchange ratio NFF could offer in a stock swap and still generate a positive? NPV?
Expert Solution
Answer:
First, calculate the number of shares of LE:
Number of shares = 5,900,000,000 / 25 = 236,000,000
Including synergies, LE will be worth $5.9 billion + $0.99 billion = $6.89 billion. On a per share basis, this is equal to $6,890,000,000 / 236,000,000 = $29.19
Hence the maximum exchange ratio that NFF can offer is $29.19 / $76 = 0.38
Thus, NFF can offer a maximum exchange ratio of 0.38 of its share in exchange of each share of LE and still generate a positive NPV transaction, as long as there are no other transaction costs.
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