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Hi John. In this question, the A part, the capital structure of pursuit will remain the same after the acquisition of fodder. However the business risk changes. Is this a type 2 acquisition? If yes, why is the Apv approach not used to deal with the free cash flow to firm?
You know longer need to know the names of the types.
APV is relevant when the capital structure changes substantially. If the capital structure stays the same then we do not need an APV approach.
Dear sir.
In this same question, the examiner derived the net benefit to pursuit co shareholders by: getting the synergy benefit and deducting the premium required to acquire folder co.
This is different from how bpp treats the same scenerio in similar questions. For example page 327 of bpp text has an example called Nessie inc. In deriving the net value to Nessie shareholders, the total value of the firm is derived, debts for both Nessie and patsy are deducted, and then the payment for the acquisition is also deducted to get the net value to shareholders.
In order words: Total value of combined firm – Nessie debt – Patsy debt – acquisition amount = net value to Nessies shareholders.
I tried this same approach in the Pusuit co question but didn’t get the same thing as the examiner. Which of these approaches are correct?
Thanks
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