The Wycombe Company is doing well and is interested in diversifying, so it has been looking...

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The Wycombe Company is doing well and is interested indiversifying, so it has been looking around for an acquisitiontarget. The Albe Company has been found with the help of aninvestment banker. Albe is quite profitable and is about half thesize of Wycombe. This size relationship is reflected in theirmarket values. Both firms are financed entirely by equity. Theinvestment banker has advised that it will be necessary to pay apremium of about 30% over market price to acquire Albe. Wycombe’spresident is having a hard time with this news and has asked youfor advice. Construct and explain an approach to the acquisitionthat might make the premium easier to rationalize. Would it affectyour argument if neither Albe nor Wycombe were particularlyprofitable? If so, how?

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The acquisition premium of 30 is on account of following three things 1 Control of Albe The acquisition will give a controlling position in Albe The control will come at a price The controlling position can enable See Answer

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