1. Comment the following statements.
1.1. “Our cost of debt is too darn high, but our banks won’t reduce interest rates as long as we’re stuck in this volatile widget-trading business. We’ve got to acquire other companies with safer income streams.”
1.2. “Merge with Fledgling Electronics? No way! Their P/E’s too high. That deal would knock 20% off our earnings per share.”
1.3. “Our stock’s at an all-time high. It’s time to make our offer for Digital Organics. Sure, we’ll have to offer a hefty premium to Digital stockholders, but we don’t have to pay in cash. We’ll give them new shares of our stock.”
2. Sometimes the stock price of a possible target company rises in anticipation of a merger bid. Explain how this complicates the bidder’s evaluation of the target company.
3. Suppose you obtain special information-information unavailable to investors-indicating that Backwoods Chemical’s stock price is 40% undervalued. Is that a reason to launch a takeover bid for Backwoods? Explain carefully.
4. From the macrovoices – podcast – https://macrovoices.podbean.com/e/macrovoices-295-…
what were the main learning points?
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