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In the answer the examiner said that
Loss in value per share of combined company if $0.31/share if 50% premium is paid instead of 30%
This represent a drop in value of 5.3% on original value of a Makonis Co share
My question Is
1) If it cause loss per share of combined company then why examiner said that this represent 5.3% drop in original value of Makonis co share, Shouldn’t he be estimating how much percentage it represent of combined company???
2) Does paying premium or additional premium cause fall in individual company’s or combined company’s share price??
If it does then explain me why???
If it doesn’t then why did examiner estimated percentage fall in original share price???
And another question not related to this question,
Suppose from acquisition predator company obtain synergy benefit of total $20m. Now target company want premium $10 which is over and above its original MV
So my question is should we assume that we will pay premium out of synergy benefit that we will realise from acquisition
1. There are more shares in the combined company, because of the extra shares issued to help fund the acquisition. The question is asking for the effect on the existing shareholders in Makonis.
2. The total value of the combined company will increase due to the synergy benefits. How much of this gain goes to the existing shareholders and how much goes to the shareholders of Nuvola depends on how much is paid to the shareholders of Nuvola – the more that is given to Nuvola shareholders, the less goes to the existing shareholders of Makonis.
3. It isn’t that the premium is paid out of synergy benefits. See my answer (2).
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