Question

Katie Homes and Garden Co. has 13,200,000 shares outstanding. The stock is currently selling at $50 per share. If an unfriendly outside group acquired 15 percent of the shares, existing stockholders will be able to buy new shares at 20 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? (Do not round intermediate calculations.) b. What will be the new purchase price for the existing stockholders? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

1,980,000            $40

Explanation:

The following is given;

No. of outstanding shares = 13,200,000

Unit stock price = $50

Acquisition by the unfriendly outside group= 15%

The existing stockholders buy new shares at 20% below $50.

It is worth learning that poison pill is a tactic used by a company that's threatened with an unwelcome takeover bid to make itself unattractive to the bidder. Through the tactic, the company sells a large number of stocks to existing shareholders at lower prices. Thus,

a) the No. of shares to be sold to the unfriendly group

=  15% * 13,200,000 = 1,980,000

b) They will buy at 20% below $50 which translates to

    $50*( 1- 0.2)

    $50*0.8 = $40

Thus, the new purchase price will be $40 per stock