Managerial Finance – M&A and IPOs
Question 1 – M&A Blended Offer
Sprint is planning on acquiring Nextel. The situation for both firms before the transaction is as outlined below:
Sprint before the transaction:
- 1,400 million shares outstanding at a market price of $25 per share·
- Market value of debt is $5,000 million·
- No excess cashNextel before the transaction:·
- 1,030 million shares outstanding at a market price of $30 per share·
- Market value of debt is $5,000 million·
- No excess cashTransaction details:·
- Sprint will pay $2 per share of Nextel and will also exchange each share of Nextel for 1.1661 sharesof Sprint·
- Sprint will finance the cash component of the offer by taking on an acquisition loan·
- Sprint will assume the outstanding debt of Nextel·
- Synergies from the acquisition will be $12,000 million (including any tax shields from theacquisition loan)·
- A) What is the enterprise value of Sprint after its acquisition of Nextel (+)?
- B) What is the market value of equity of Sprint after its acquisition of Nextel (+)?
- C) What is the share price of Sprint after its acquisition of Nextel (+)?
- D) What is the Price Paid by Sprint for the acquisition of Nextel?
- E) How much value did Sprint create for its shareholders through the acquisition?
Managerial Finance – M&A and IPOs