Question: Ace and Brace Homebuilding will merge. Ace has a total market value of $50 million and Brace has a total market value of $75 million. Their merger will lead to operating efficiencies and will produce present value savings of $10 million.
Q1. What is the total market value of the merged firms?
Q2. If the merger would entail expenses amounting to $5 million, is there a net advantage to merging?
Q3. If Ace buys Brace's outstanding shares, paying Brace's common stockholders a $3 million premium, will the acquisition be advantageous to Ace's shareholders? How is the net advantage to merging divided between the two firm's shareholders?