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X acquiring Y
X current market price = $ 9.24
Y estimated market price = $ 4.77Exchange ratio = 3 share of X for 2 shares in Y + cash offer of $1.33
what would the % premium of Y share be for this payment method if looking from Y’s shareholder point of view?
You have written ‘Y estimated price’ but the calculation would be based on Y’s actual share price.
On that basis, Y shareholders receive (3 x 9.24) + 1.33 = 29.05 for every 2 shares that they currently own, or 29.05/2 = $14.525 per share.
So a premium of (14.525 – 4.77)/4.77 = 204.5% (which makes it extremely unlikely that these would be the numbers in an actual exam question, because it is a ridiculously high premium 🙂 )
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