Managerial Finance – M&A and IPOs

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Documents and notes attached for reference. I only need question number one answered.

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Question 1 – M&A Blended Offer

Sprint is planning on acquiring Nextel. The situation for both firms before the transaction is as outlined below:

Sprint before the transaction:

  •  1,400 million shares outstanding at a market price of $25 per share
  •  Market value of debt is $5,000 million
  •  No excess cashNextel before the transaction:
  •  1,030 million shares outstanding at a market price of $30 per share
  •  Market value of debt is $5,000 million
  •  No excess cashTransaction details:
  •  Sprint will pay $2 per share of Nextel and will also exchange each share of Nextel for 1.1661 sharesof Sprint
  •  Sprint will finance the cash component of the offer by taking on an acquisition loan
  •  Sprint will assume the outstanding debt of Nextel
  •  Synergies from the acquisition will be $12,000 million (including any tax shields from theacquisition loan)
  1. A) What is the enterprise value of Sprint after its acquisition of Nextel ( + )?
  2. B) What is the market value of equity of Sprint after its acquisition of Nextel ( + )?
  3. C) What is the share price of Sprint after its acquisition of Nextel ( + )?
  4. D) What is the Price Paid by Sprint for the acquisition of Nextel?
  5. E) How much value did Sprint create for its shareholders through the acquisition?