Shares of Warner Music Group reached a 52-week high on Thursday upon news that Access Industries is nearing a deal to acquire the company.
At midday trading on Thursday, shares stood at $7.83. Shares reached their 52-week high of $8.15 earlier in the day.
A share price of $7.83 carries a market value of $1.21 billion and implies an enterprise value of $2.92 billion. Warner had long-term debt of roughly $1.95 billion and cash and cash equivalents of $263 million on December 31. By bidding up shares to $7.83, investors are showing they believe a deal is highly likely and the bid will be around $3 billion. An acquisition price of $3 billion implies a per-share price of $8.35, which gives buyers at $8.15 some upside.
A company's enterprise value represents the actual cost of an acquisition. It equals the market value of a company's common stock plus the value of its debt and less cash (plus a few other things not included in the simple equation used above, such as preferred shares). In other words, it's the total price a bidder pays for acquiring a target's shares, taking on its debt and pocketing the company's cash.
Access is a diversified industrial company with interests in natural resources and chemicals, real estate and media and telecom. The company was founded by its current chairman -- and current Warner shareholder -- Len Blavatnik.