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I am a bit confused with how to calculate the value attributable to acquirer and target company from the total Synergy.
Synergy is combined company value – equity value of acquirer-equity value of target company.
In Chikepe, they deducted premium payable to Foshoro Co by the total synergy benefit to arrive at the benefit to acquirer, in Westperly, we deducted debt, equity and premium. Why are we not deducting debt that we will be incurring if we acquire Foshoro Co?
Is there a formula to get the benefit to aquirer and benefit to target?
The synergy benefit is the difference between the total value of the new enlarged company, and the current total value of the two separate companies.
There is no formula for splitting the benefit – it depends on what the terms of the takeover have been agreed (as stated in the question).
When you refer to past exam questions, please state the date of the exam because although I have all past questions I cannot remember the name of every question in every exam 🙂
Thank you so much!
Westparley is March 2020, to find the gain to Westparley shareholders, they deducted debt in b (ii), but in Chekepe Co June 2018, we just deduct the premium from synergy to find if the aquisition is benefical to Chikepe Co.
Can you please help me understand the difference between the two requirements?
In one total combined market value – equity value of each individual companies – premium is the benefit to acquirer.
In another (westparley), they deduct debt, equity to get to the value.
My concept is not clear in this, please help me clear my concept.
In Westparley. the shareholders in Maltravers will get 14,375 and the debt investors are owed 6,500. So Westparleys shareholders get the PV of the cash flows plus the synergy benefits plus the sell-off proceeds, less the amount going to Maltravers investors.
In Chikepe we are only calculating how the synergy benefit is to be split.
How do we understand when to calculated what as Wesparley question asked to calculate the total value the shareholders will gain from the acquisition and Chikepe question asked to calculate the benefit to the shareholders from aquisition.
How do you determine one is asking for synergy split?
Sorry, this is a stupid question but I am really facing difficulty understand the difference between these two question requirements.
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