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    Mergers & Acquisitions : Immense Appetite, Inc., believes

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    Immense Appetite, Inc., believes that it can acquire Sleepy Industries and improve efficiency to the extent that the market value of Sleepy will increase by $5 million. Sleepy currently sells for $20 a share, and there are 1 million shares outstanding.

    a. Sleepy's management is willing to accept a cash offer of $25 a share. Can the merger be accomplished on a friendly basis?

    b. What will happen if Sleepy's management holds out for an offer of $28 a share?

    Please explain the concept.

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    Solution Preview

    Total Market value of Sleepy = No. of share*current market price = 1 million * $20 = $20 millions
    Efficiency Gains = 5 million
    Total value of Sleepy to Immense Appetite = $20+5=$25 million

    a) ...

    Solution Summary

    This problem will help students to understand the concepts of M&A such as cash offers in friendly deals.