A company receives an unsolicited cash offer at a 30% premium. Its own DCF range brackets the offer, and a white knight might pay more in stock with some risk of failing. Should the board accept, reject or pursue the white knight?

Do not reject: the Rs 520 cash offer is worth about the same as the white knight's risk-weighted Rs 519 and sits at the middle of the board's own range. The white knight only wins if its chance of failing is below 14.3%, and its stock price can move before closing. The board should use the white knight's interest to ask the bidder for a higher cash price, and accept if it comes, rather than hold out for Rs 560.

If someone offers to buy your flat for a sure price today, you compare it with what you would actually get by not selling, not with the best price a broker once mentioned. A board compares a certain offer with the risk-weighted value of its alternatives, not with the top of its own valuation range. Rs 520 is a 30% premium to the market and exactly the middle of the Rs 480 to Rs 560 DCF range. Rejecting it to hold out for Rs 560 assumes the plan behind the top of the range is delivered in full, which is the risk the bidder is offering to take off shareholders' hands.

Weight the outcomes. Rs 540 with 85% probability and Rs 400 with 15% is worth about Rs 519 a share, a rupee below the certain cash, and the white knight only comes out ahead if its chance of failing is under 14.3%. Two further risks sit on top. The Rs 540 is paid in the white knight's shares, so its value moves with that company's share price between signing and closing; a 4% fall in its shares would take Rs 540 to about Rs 518. And a deal paid in stock leaves Ilvani's shareholders owning part of the combined company, exposed to whether the merger works.

Use the alternative as leverage rather than as the destination. The white knight's interest proves there is competition for Ilvani, and the board's best move is to tell the bidder that a credible higher alternative exists and ask for a better cash price. A raise to Rs 540 in cash would dominate both other paths: more money, no stock risk, no failure risk. If the bidder will not move, accepting Rs 520 is defensible, because it is the middle of the board's own range in cash. The board's fiduciary dutyThe legal obligation of directors to act in the interests of the company and its shareholders, including when responding to a takeover offer. is to get the best value reasonably available, not to hold out for the most optimistic number in its model.

Present it on one page: the three paths with their values, the break-even failure risk for the white knight, and the recommendation to negotiate. Close with the limit: the 15% failure estimate is a judgement, and if the board believes the white knight's financing and approvals are near certain, the stock offer becomes competitive, so the case for running a short competitive process is strong either way.