The firm Amble is entirely financed by equity. It has 4 million shares and a current share price of $8. It is public knowledge that the firms current management is inefficient and the firms share price would be $11 if well managed. Ambles shares are owned entirely by small shareholders. The administrative costs to acquire Amble would be $0.14 million. An acquirer can gain control of the firm and manage it efficiently if they can purchase at least 51% of its shares. Assume the market is semi-strong form efficient.
a) Lawson, an entrepreneur, can secretly buy 5% of Ambles shares at the current market price, then make a public bid for a further 46% of the total number of shares at $11 each. What is Lawson's profit? Will the takeover go ahead? Explain. (4 marks)
b) Assume that Lawson implements the strategy described in part (a). Amble has made a provision that when a potential acquirer reaches a holding of 16% of its shares, all shareholders except the acquirer will be able to buy one new share in Amble for each share they own at a 40% discount off the current market price. The market believes that Lawson will take control and you can assume a current market price of $11 to start with.
(i) How many new shares will be issued? (3 marks)
(ii) After the provision has been triggered, what will be the market price of a share in Amble? What will be the value of Lawsons shareholding in Amble?
ANSWER QUESTION B PLEASE!!!!!!!!!!!
