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Hi sir,
Both question request compute the % gain in share price after acquisition for combined company.
However, how do we know when to use PAT method ( Nente ) to compute expected share price after merger or MV equity method ( sigra) to computed expected share price? Both method actually generate different % gain.
Thank you.
It depends from which shareholders point of view you are being asked to consider.
The acquiring company will be able to estimate what the effect of their share price will be, and therefore use this to determine what they can afford to offer. The shareholders of the target company will not know these estimates and so will base their decision on the current value of the shares they are being given.
If it is not clear to you which is being asked for in a particular question then (as always in P4) state your assumption and you will still get most if not all of the marks.
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