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Dear professor John
I would like to know how do we calculate the gain or loss from an acquisition for the shareholders of both target and bidding companies from the point of view of examination for both cash and share exchange please sir illustrate with a numerical example@godhelp1 said:
Dear professor John
I would like to know how do we calculate the gain or loss from an acquisition for the shareholders of both target and bidding companies from the point of view of examination for both cash and share exchange please sir illustrate with a numerical exampleI am finding this area confusing sir and there are no questions on notes or bpp work book on this area
As far as the acquiring company is concerned, we value the combined company in the way explained in my free lectures and subtract the total current value of the two separate companies. The difference is the synergy gain. The gain to the shareholders of the acquiring company is this synergy gain less any premium paid to the shareholders of the target company.
As far as the shareholders of the target company are concerned, their gain is the difference between the current share price and the amount they are being paid for their shares. It is a share exchange, then they will calculate the amount they are being paid using the current share price of the acquiring company (because they will not have the information available to calculate the new share price).
You will find questions on this in your Revision Kit.
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