Question

Katie Homes and Garden Co. has 14,000,000 shares outstanding. The stock is currently selling at $66 per share. If an unfriendly outside group acquired 20 percent of the shares, existing stockholders will be able to buy new shares at 25 percent below the currently existing stock price.A. How many shares must the unfriendly outside group acquire for the poison pill to go into effect?B. What will be the new purchase price for the existing stockholders?

Answer 1

Answer:

a. 2,800,000 shares

b. $49.50

Explanation:

a. Poison is a tactic used by a company threatened with an unwelcome takeover bid to make itself unattractive to the bidder

Shares that the unfriendly outside group must acquire for the poison pill to go into effect is

= 20% of 14,000,000 shares.

= 14,000,000 × 20%

= 2,800,000 shares

b. The new purchase price for the existing stockholders will be

=$66 × (1 - 0.25)

= $49.50