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Homework answers / question archive / You work for a leveraged buyout firm and are evaluating a potential buyout of Associated Steel
You work for a leveraged buyout firm and are evaluating a potential buyout of Associated Steel. Associated Steel's stock price is $15 and it has 10 million shares outstanding. You believe that if you buy the company and replace its management, its value will increase by 50%. You are planning on doing a leveraged buyout of Associated Steel, and will offer $20 per share for control of the company.
a) Assuming you get 50% control of Associated Steel, what will be the price of the non-tendered shares?
Computation of the price of the non-tendered shares:-
Value of firm = $15 * 10
= $150 million
Increase in value = $150*(1+50%)
= $225 million
Total amount = $20 * (10*50%)
= $20 * 5
= $100 million
New value of equity = $225 - $100
= $125 million
Share price = $125 / 10
= $12.50 per share
