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    Calculating buyout prices

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    Gamma Corporation is considering a two-step buout of Delta Corporation. Delta Corporation has 2,000,000 shares outstanding and its stock price is currently $40 per share. In a two-step buyout, Gamma Corporation will offer to buy 51% of Delta Corporation's shares outstanding for $68 per share in cash, and the balance in a second offer of 980,000 convertible preferred stock shares. Each share of the convertible preferred stock would be valued at a premium of 45% above the current value of Delta Corporation's common stock. In the alternative, Gamma Corporation is also considering a one-step buyout of all of Delta Corporation's shares at $65.25 per share. Compare the total costs of the two alternatives.

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    ANSWERS
    Two-step
    2,000,000 x 51% x $68 = $69,360,000
    2,000,000 x 49% x [$40 x (1 + 45%)] = $56,840,000
    Total ...

    Solution Summary

    This solution provides calculations for buyout prices.

    $2.19

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