Chapter 5: 3BP-a (page 567)

Katie Homes and Garden Co. has $10, 640, 000$ shares outstanding. The stock is currently selling at $$ 52$ per share. If an unfriendly outside group acquired $25$ percent of the shares, existing stockholders will be able to buy new shares at $30$ percent below the currently existing stock price.
a. How many shares must the unfriendly outside group acquire for the poison pill to go into effect?

Expert verified

The unfriendly group must acquire $2, 660, 000$ shares for poison pill to take effect.

Step by step solution

Share outstanding $= 10, 640, 000$

Trigger point $= 25 %$

The unfriendly group should acquire $2, 660, 000$ shares

Number of shares to be acquiredlocalid="1650266012464" $=$ Total shareslocalid="1650266022188" $\times$ Trigger point

localid="1650266032161" $=$ localid="1650266088018" $10, 640, 000$ localid="1650266041576" $\times$ localid="1650266126526" $25 %$

localid="1657868055782" $=$ localid="1650266136862" $2, 660, 000$

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In \( millions	In \) millions
Current assets	\(70	Current liabilities	\)30
Fixed assets	\(70	Long-term liabilities	\)30
		Total liabilities	\(60
		Stockholder’s equity	\)80
Total assets	\(140	Total stockholder’s equity and liabilities	\)140