You work for a leveraged buyout firm and are evaluating a potential buyout of Associated Steel

Finance Nov 16, 2020

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?

Expert Solution

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

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