Reading: Initial Offer Price

Based on these valuations, the next step is to determine the initial offer price. More specifically, the buyer has to determine the following three dimensions of the initial offer price:
 

• What to buy?
   
• How much to pay?
   
• How to pay?

To determine the initial offer price, the typical procedure is to:

• Determine whether the purpose of the deal is to acquire the firm's equity or its assets. This topic has been discussed extensively in the course section Forms of Takeover.
   
• Define the minimum and maximum purchase price range.
   
• Determine the amount of synergy (and control premium) the acquire shares with the target.
   
• Determine the appropriate composition of the offer price (cash, stock, other).

The following subsection take a closer look at these important issues.