The Birdie Golf – Hybrid Golf MergerHybrid Golf and Birdie Golf are two companies that have been engaging in talks of merging their company in the past 6 months or so. It is imperative to note that both of these companies are in good position on their own and have niche markets. Moreover, the contemplations of proceeding with the merger is encouraged owing to the fact that it is deemed a beneficial transaction for both of them if the merger actually takes place. In addition, both Birdie and Hybrid will enjoy economies of scale that come along with the transaction. At the present moment, the price at the table is $68.75 for every share of Hybrid’s stock. The purpose of this paper is to conduct a comprehensive analysis regarding the expected value of Hybrid so as to determine whether the price given ought to be accepted by Birdie or not. In addition, the analysis will take into consideration the ideal and appropriate exchange ratios that can be agreeable between the two companies.

1. Suppose Hybrid shareholders will agree to a merger price of $68.75 per share. Should Birdie proceed with the merger?

As given, the stock outstanding at Hybrid stands at 5.2 million shares. Supposing that there is an agreement of a merger price of $68.75 for every share, then it means that Hybrid’s shareholders will receive a total amount of:

5,200,000 × 68.75 = 357,500,000

This is the total amount...

In this regard, the decision by Birdie to go ahead with the merger ought to be determined whether the total stakeholders’ amount computed above is equivalent to the expected value of the firm. The expected value of Hybrid in five years will be $576 million with a debt amount of $192 million. This implies that the expected value less the debt value is
$576 m - $196m = $384 m.

The inference of this is that Birdie should proceed with the merger for the reason that the price quoted by Hybrid is lower than the expected value of the firm.

2. What is the highest price per share that Birdie should be willing to pay for Hybrid?

The expected value of Hybrid less the amount of debt of the company will be $384. Taking into consideration that the number of outstanding shares is 5.2 million, then it implies that the highest price per share that Birdie should be willing to pay is:

$384m / 5.2m = $73.84

It is imperative to note that the maximum amount that Birdie should pay out to Hybrid should not surpass the company’s expected value and therefore the maximum price per share that it should be willing to pay is $73.84 (Saunders and Cornett, 2003).

3. Suppose Birdie is unwilling to pay cash for the merger but will consider a stock exchange. What exchange ratio would make the merger terms equivalent to the original…