Maytake is negotiating a merger with Magic Check. In the merger Magic Check stockholders will receive shares of Maytake in exchange for their Magic Check shares. Maytake currently has 175M shares outstanding with a market price of $25 each, while Magic Check has 60M shares outstanding with a market price of $40 each. These prices correctly reflect their standalone values. Neither company has any debt or cash.
- (20 points) Magic Check says they want an exchange ratio of 1.8 Maytake shares per Magic Check share. What would the present value of synergies from the merger have to be in order for Maytake to break even at this exchange ratio?
- (20 points) Maytake is arguing that both companies will benefit significantly if they agree to exchange shares at a ratio based on the current market prices, i.e., 40/25 = 1.6 Maytake shares per Magic Check share. If you believe the merger will actually create actually create $1 billion billion in present value of synergies, how much value will be created for Maytake’s shareholders if Magic Check agrees to this exchange ratio? (Give your answer in dollar, not percentage, terms.)
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