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5. The firm Darby is entirely financed by equity. It has 3 million shares and a current share price of $6. It is public knowledge that the firm's current management is inefficient and the firm's share price would be $8 if well managed. Darby's shares are owned entirely by small shareholders. The administrative costs to acquire Darby would be $0.1 million. An acquirer can gain control of the firm and manage it efficiently if they can purchase at least 51% of its shares. Assume the market is semi-strong form efficient. a) Minter, an entrepreneur, can secretly buy 5% of Darby shares at the current market price, then make a public bid for a further 46% of the total number of shares at $8 each. What is Minter's profit? Will the takeover go ahead? Explain. b) Assume that Minter implements the strategy described in part (a). Darby has made a provision that when a potential acquirer reaches a holding of 12% of its shares, all shareholders except the acquirer will be able to buy one new share in Darby for each share they own at a 20% discount off the current market price. The market believes that Minter will take control and you can assume a current market price of $8 to start with. (i) How many new shares will be issued? (ii) After the provision has been triggered, what will be the market price of a share in Darby? What will be the value of Minter's shareholding in Darby? (iii) Will the takeover go ahead? Explain. c) Identify and briefly explain an alternative strategy Minter might use to implement an efficient takeover of Darby. (100 words) d) Apart from potential takeover opportunities, what advantages and disadvantages might there be for a single shareholder who holds a large block of shares in a firm? (130 words)

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