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I'm a bit confused on the following matter:
Let's say company X has $50 market value equity and $50 net debt so firm value is $100. Let's say I want to buy company X 100% with no premium (for this example). Am I actually paying $50 for the equity, or $100 for the firm? And to whom am I actually paying for the debt and equity to - if company X were public or private?
I guess I'm just a bit confused because equity denotes ownership but since debt also financed the firm, does this mean I'm buying the debt as well - or how does this exactly work?
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Just a follow up with same above example:
Suppose Company X has $50 total market value of equity and they have 100 shares so price/share is $0.50. If I make a tender offer of $0.75/share for 51 shares, would I be correct in saying that I gain control of the entire company now? But what would happen to the $50 of debt - if I buy the debt, would this be equal to paying off all the principal and thus there would be no more interest?
But in the case that the tender offer succeeds and I don't "buy" the debt, would this mean that I control the company and own 51% of it, but I still have debt outstanding and must continue to pay the interest expenses?
I realize this is a basic question, but I wanted to be clarified.
Thanks Read More