- This topic has 3 replies, 2 voices, and was last updated 9 years ago by
.
- Posts
Hi John,
I have been working through Qn. 44 & 45 in the BPP Revision Kit. Both questions have a share for share swap in the offer of financing.
In Qn. 44, Sigra Co, while valuing the share offered to acquire Dentro, Sigra’s new share price from the combined company was used. Whereas in Qn.45, Hav Co, the share offered was valued using Hav’s original share price.
My assumption is that if we want to determine the gain that will accrue after acquisition, then post acquisition share price should have been used.
Please help!
Thanks.
The examiner is maybe a bit unfair with is wording.
In one of the questions you are asked which of the options the shareholders of the company being acquired are likely to prefer. The will not know what will happen to the share price after the takeover and they are likely to base their thinking on the current share price.
In the other you are asked about the premium the acquiring company will be paying – they are in a position to be able to estimate the value after the acquisition.
The wording is very similar and so it is a bit unfair. I think the examiner would have given full marks in Hav if you had used the new share price instead.
- You must be logged in to reply to this topic.