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Garth’s Micro Brewery, whose shares are currently trading at $40 per share, is considering acquiring Wayne’s Beer Bottling Co. You have compiled a group of comparable transactions within the beer bottling space and have calculated that since 2014, acquisitions similar (or comparable!) to the one Garth’s is currently considering have had transaction values (offer value of target plus any target debt, net of cash) that are, on average, 8.0x target’s EBITDA. Wayne’s shares currently trade at $34 per share Wayne’s has 50 million diluted shares outstanding Wayne’s LTM EBITDA was $250 million Wayne’s Net Debt was $200 million What is the offer value per share and the offer premium?

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jepessoa

Answer:

offer value = $36 per stock

offer premium = $2 per stock or 5.9%

Explanation:

total acquisition price = 8 x $250 million = $2 billion (including $200 million of net debt)

so Garth will pay $1,800 million to Wayne's stockholders. Wayne's total outstanding stocks = 50 million, so transaction price per stock = $1,800 / 50 = $36 per stock

this results in a $2 premium per stock or $2/$34 = 5.9% premium

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