1. Calculate the exchange ratios, based on the common stock market value and earnings per share.
2. Mr. Favorite has suggested an exchange ratio based on a 25 percent increase over Favorite’s current market price. Calculate this exchange ratio.
3. What is the maximum exchange ratio Admiral Foods should agree to if one of its acquisition criteria specifies no initial dilution in earnings per share? What per-share price for Favorite Food Systems does this exchange ratio represent?
4. Even though Harrington’s assignment is primarily financial in nature, what other considerations are important in a merger such as this?
5. Calculate the Admiral Foods postmerger earnings per share assuming each share of Favorite stock is exchanged for 0.40 shares of Admiral Stock.
6. In discussions with Admiral, Mr. Favorite has stated that he would prefer to exchange his Favorite shares for either Admiral common stock or a convertible preferred rather than cash or debentures. Why?
7. If Admiral Foods is concerned about the possibility that Mr. Favorite will sell his new Admiral shares relatively soon after the merger (and thereby put downward pressure on the price of Admiral’s stock), what can Admiral do to effectively prevent such a sale?
8. If Mr. Favorite is unsuccessful in his negotiations with Admiral, two of his key managers, together with a group of private investors, have expressed willingness to take the company private in a leveraged buyout transaction. How do you think such a transaction would be structured?
9. Based on the information given in the case and your analysis, what do you feel is a fair exchange ratio?

Admiral Foods Corporation is a diversified food processing and distributing company that has shown excellent growth over the past 10 years as a result of a balanced program of acquisitions and internal growth. 
One segment of the food business in which Admiral has only recently begun to compete, however, is the fast-food business. The present top management of Admiral Foods feels that good future growth in the fast-food business is still possible, regardless of the rapid expansion of the 1980s and 1990s. During the past year, members of the Admiral staff have examined and analyzed a number of independent fast-food firms. One company that the analysis indicated as potentially suitable for acquisition by Admiral is Favorite Food Systems, Inc.