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Sir, why can’t we calculate the MV per share of Tidded Co using the P/E valuation method as I have done below:
Tidded Co:
PAT – $128m
P/E – 15.9
Shares – 90mValue per share of Tidded Co = ($128*15.9)/90 = $22.6/share.
1) In the marking scheme the examiner has simply multiplied the MV per share of Louieed Co x 5/3. I am really confused by the method the examiner has used. Please enlighten me on this matter.
2) Will I get the full marks if I choose to calculate the value per share of Tidded Co based on P/E valuation method and state my assumptions?
Thanking you in advance for your kind explanation!
What you have calculated is the market value per share of Tidded before Louieed made the offer to buy them.
The question asks you for the PE ratios implied by the terms of the offers and they depend on how much Louieed offers to pay for the shares.
For example, the initial offer was 5 shares in Louieed for every 3 shares in Tidded, so that would be effectively offering 5/3 x the share price of Louieed for every share in Tidded.
What you have done would probably get 1 mark, but I doubt that it would get any more.
hi sir, during the share to share exchange right, did the company have to issue new shares in order to exchange it or, is it the company just exchange their shares that have been issued before… if there just using their old shares, it means that there will be no movement (increase/decrease) in the no of share right?
With a share for share exchange, the acquiring company issues new shares and gives them to the shareholders in the target company. The existing shares in the target company are cancelled.
The EPS is not constant. It is $0.85 with the share offer, $0.96 with the cash offer, and $0.89 with past shares and part cash.
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