The value of BenShield Insurance is $540 million dollars. They are acquiring The Matco Company, valued at $180 million. The two companies combined are valued at $810 million. If BenShield pays $216 million in cash to the Matco owners, the BenShield shareholders gain

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Multiple Choice

The value of BenShield Insurance is $540 million dollars. They are acquiring The Matco Company, valued at $180 million. The two companies combined are valued at $810 million. If BenShield pays $216 million in cash to the Matco owners, the BenShield shareholders gain

The main idea is how value from a merger is split between synergy creation and the premium paid for the target. The combined value is 810 million, which is 90 million more than the stand-alone values (540 + 180 = 720). That 90 million is the synergy created by the merger. BenShield pays 216 million to acquire Matco, which is 36 million more than Matco’s standalone value of 180 million, so there’s a 36 million premium. The net gain to BenShield shareholders is the synergy minus the premium: 90 − 36 = 54 million. So BenShield shareholders gain 54 million.

The main idea is how value from a merger is split between synergy creation and the premium paid for the target. The combined value is 810 million, which is 90 million more than the stand-alone values (540 + 180 = 720). That 90 million is the synergy created by the merger. BenShield pays 216 million to acquire Matco, which is 36 million more than Matco’s standalone value of 180 million, so there’s a 36 million premium. The net gain to BenShield shareholders is the synergy minus the premium: 90 − 36 = 54 million. So BenShield shareholders gain 54 million.

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