[Gabe]

You represent Company A (the acquirer) which is currently considering acquiring Company T (the target) by means of a tender offer. You plan to tender in cash for 100% of Company T's shares but are unsure how high a price to offer. The main complication is this: the value of the company depends directly on the outcome of a major oil exploration project it is currently undertaking.

The very viability of Company T depends on the exploration outcome. In the worst case (if the exploration fails completely), the company under current management will be worth nothing-$0/share. In the best case (a complete success), the value under current management could be as high as $100/share. Given the range of exploration outcomes, all share values between $0 and $100 per share are considered equally likely. By all estimates the company will be worth considerably more in the hands of Company A than under current management. In fact, whatever the value under current management, the company will be worth 50% more under the management of Company A than Company T.

The board of directors of Company A has asked you to determine the price they should offer for Company T's shares. This offer must be made now, before the outcome of the drilling project is known.

Thus, you (Company A) will not know the results of the exploration project when submitting your offer, but Company T will know the results when deciding whether or not to accept your offer. In addition, Company T is expected to accept any offer by Company A that is greater or equal to the (per share) value of the company under its current management.

As the representative of Company A, you are deliberating over the price offers in the range $0/share to $150/share. What offer per share would you tender?