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Learn/M&A & Merger Modeling/Module 2
2.1·6 min read

Offer Price & Control Premium

To win control, the buyer offers a premium over the target's current share price. Multiply by shares to get the offer value.

By the end you can
  • ✓Compute an offer price from a control premium
  • ✓Turn it into total offer (equity) value
Control Premium

The extra amount, over the target's current trading price, that a buyer pays to acquire control. Premiums are usually 20-40%, and bankers benchmark them against recent precedent transactions.

Offer Price=Current Price×(1+Premium)Offer Value=Offer Price×Target Shares\text{Offer Price} = \text{Current Price} \times (1 + \text{Premium}) \qquad \text{Offer Value} = \text{Offer Price} \times \text{Target Shares}
Offer value (the equity purchase price) is what the model spends in the sources & uses.
Worked example · Price the bid
Given
  • •Target price: $16.00
  • •: 25%
  • •Target shares: 200M
Solution
  1. 1. per share
    16.00×(1+0.25)=$20.0016.00 \times (1 + 0.25) = \$20.00
  2. 2.
    20.00×200=$4.0B20.00 \times 200 = \$4.0\text{B}
Answer

A 25% puts the bid at $20.00, for a $4.0B .

Check yourself

A target trades at $50. The buyer offers a 30% premium. The offer price is:

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Sizing the Two Companies
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Cash vs. Stock