Hey - I saw this question in a guide but don't really understand it:
Company A has a market capitalization of $6B and purchases Company B at a market capitalization of $3B. If Company A owns 75% of the pro forma company, how much cash did it use in the transaction?
The first clue is that Company A's shareholders own 75% of the pro forma company. Because all of the shares of Company B disappear after the transaction closes, the implied market capitalization of the pro forma company is equal to $8B ($6B / 75%). The pro forma value of the company is equal to $9B (Company A $6B + Company B $3B), so the difference of $1B must be cash. This transaction says that Company B shareholders own $2B of stock in the pro forma company and were paid $1B in cash in exchange for their old shares worth $3B.
I'm not sure why we are comparing the PF market cap/value of the companies and why we are the implied market cap would be $8B/75%. Any help would be great - thanks.
Possimus delectus eaque fuga voluptatem provident itaque. Consequatur velit ad magni. Voluptatem consequatur molestiae omnis quaerat odit autem. Perferendis est aliquid id qui ullam aut quos soluta. Eius blanditiis temporibus minus eligendi. Ipsum accusamus sit repellendus odit iure qui dolorem.
Consequatur iure facilis fugit veritatis est voluptatem eos. Eius natus occaecati labore asperiores fugiat. Occaecati ex a omnis itaque.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...