Section outline

  • Now we are ready to discuss the key steps involved in the decision about the initial offer price. Put simple, the questions we need to answer are:

    • What to buy? The assets or the equity of the firm?
    • How much to pay? Put differently, which fraction of the expected net synergies shall be shared with the target company?
    • How to pay? What should be the composition of the offer price? All cash? All stock? Or a mixture between cash and stock?

    In this context, we learn about the relevance of the synergies (net of integration costs) that are associated with the deal in question as well as the key factors that determine who will earn the financial benefits that are associated with these synergies.

    • The section's reading assignment and review questions are listed below: