A Would-Be Acquirer Is Preparing to Make a First-And-Final Tender

Essay

A would-be acquirer is preparing to make a first-and-final tender offer to acquire target Company T. The acquirer judges that Company T's reservation value is somewhere between $60 and $90 per share, with all values in between equally likely. Under its own management, the acquirer predicts that the target will be worth $100 per share. Should the firm offer $90 per share to assure that Company T will sell out? Determine the offer that maximizes the acquirer's expected profit.