In providing your advice, which of the following statements is correct?

Company A has made an offer to acquire Company Z.

Both companies are quoted and their current market share prices are:

• Company A – $4

• Company Z – $5

Shareholders in company Z have been given three alternative offers:

• Cash of $5.50 per share

• Share for share exchange on the basis of 3 for 2

• 10.5% long dated bond for every 20 shares

The bond is has a nominal value of $100 and the expected yield on bonds of similar risk is 10%.

You are advising a Company Z shareholder on the three offers.

She requires a 15% premium if she is to accept the offer.

In providing your advice, which of the following statements is correct?
A . The bond offer is only worth $100 which represents a zero premium and should be rejected.
B . The bond offer is above the minimum threshold and should be accepted.
C . The share for share exchange is the only offer which is above the acceptance threshold.
D . The value of the consideration given by the cash and bond offers is certain, unlike the share offer.

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Answer: C