Problem:
Gamma Corporation is considering a two-step buyout of Delta Corporation. Delta Corporation has 2,000,000 shares outstanding and its stock price is currently $40 per share. In a two-step buyout, Gamma Corporation will offer to buy 51% of Delta Corporation's shares outstanding for $68 per share in cash, and the balance in a second offer of 980,000 convertible preferred stock shares. Each share of the convertible preferred stock would be valued at 45% of the current value of Delta Corporation's common stock. In the alternative, Gamma Corporation is also considering a one-step buyout of all of Delta Corporation's shares at $65.25 per share. Compare the total costs of the two alternatives.