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Dear Sir,
Could you clarify for me why the consideration/offer value used to calculate the premium paid to the share holders of an acquiree company are different in the examiner answer to the below questions:Q2 – Jun 13 (easy way)
Share for share: consideration = current share price of the acquirer (Hav Co)
(Convertible) Bond: consideration = par value 100$Q3 – Dec 12 (proper way)
Share for share: consideration = estimated price of the combined company
(Redeemable) Bond: consideration = present valueI assume that when we don’t have all the information to do the proper way, we can do it the easy way. But considering the pressure in the exam, this can be really confusing.
Many thanks
I know it is confusing between the two, but it is not really a question of proper way and easy way!
It is really a question of from who’s point of view are we looking at it from and what information they have. If a company is being acquired by another, then the shareholders of the company being acquired will not be in a position to forecast what the new share value will be, and will therefore be likely to base their decision on the current market prices.
On the other hand the acquiring company will be in a position to forecast the new share price and will likely base their decisions on that.
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