ABC Inc. in considering the acquisition of Togo Company. The market values of the two companies as separate entities are $40 million and $15 million, respectively. ABC's financial managers estimate that by combining the two companies, it will reduce IT and administrative costs by $800,000 per year for the next 15 years. ABC would either pay $18 million cash for Togo or ofter Togo a 30% holding in the new combined firm. the opportunity cost of capital is 12%.
What is the gain from merger?