Me r g er Gains. Immense Appetite, Inc., believes that it can acquire Sleepy Industries and improve efficiency to the extent that the market value of Sleepy will increase by $5 million. Sleepy...

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Immense Appetite, Inc., believes that it can acquire Sleepy Industries and improve efficiency to the extent that the market value of Sleepy will increase by $5 million. Sleepy currently sells for $20 a share, and there are 1 million shares outstanding.

a. Sleepy’s management is willing to accept a cash offer of $25 a share. Can the merger be accomplished on a friendly basis?

b. What will happen if Sleepy’s management holds out for an offer of $28 a share?