Two firms A and B are publicly listed and have 6 million and 4 million issued shares respectively. On day 2 of a given month, the market value per share is $5 for A and $3 for B. On day 5, the...

Two firms A and B are publicly listed and have 6 million and 4 million issued shares respectively. On day 2 of a given month, the market value per share is $5 for A and $3 for B. On day 5, the management of company A decides at a private meeting to make a cash takeover bid for company B at a price of $5 per share. The takeover will produce operating savings with a present value of $12.8 million. On day 10, company A publicly announces an unconditional offer to purchase all shares of B at a price of $5 per share with settlement on day 20, but details of the large cost savings are not announced and are not made public knowledge. On day 18, company A announces the details of the savings that will be derived from the takeover of company B. Ignoring taxes and the time value of money (TVM) between days 2 and 18 and assuming the details given above are the ONLY factors having an impact on the share prices, determine the share values of A and B in each of the following circumstances:

(a) The purchase price is on a cash basis as specified above, if the market is

(i) semi-strong form efficient; and (ii) strong-form efficient;

(b) The purchase consideration decided on day 2, and publicly announced

on day 4, is one newly issued share of B for each share of A, if the market is (i) semi-strong efficient; and (ii) strong-form efficient.