R26 - M&A (Corporate Finance) - Example 10

CFA Level II Corporate Finance
#1

Hi,

Can anybody explain the conclusion drawn from example 10 of the curriculum.

  1. Cash option - premium 60 million

  2. Stock Option - premium is 67 million

  3. Mixed option - premium is 64 million

Still the conclusion drawn is for stock option why the acquirer pay the high premium.

#2

This question is phrased from the point of view of the target, not the acquirer’s point of view. For the shareholders of the target company it is optimal to maximize the premium. Thus option 2 should be recommended to the management of the target company.