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I can see there are 2 different way in calculating share for share offer between 2 question :
part c – Question 2 – Jun 2013 & part a – Question 3 – Dec 2012
In Jun 13 Q2, the offer is calculated by using current share price of Hav co. (Acquier) which is $9.64.
With 1 Hav co. ‘s share to 2 Strand co.’s share that means Strand co’s share is valued at $4.62 ($9.64 / 2 )
In contrast, in Dec 12 Q3, with the same deal as share for share exchange – 3 Sigra for 2 Dentro. The question also mentioned about the current share price of Sigra of $3.6 but the answer is differently calculated by using the combined company’s share price
I don’t understand the principle underlying in share for share exchange offer? or maybe i missed some clue in question?
Please explain for me why there are 2 way of quantifying the share for share exchange like that?
It is confusing and the examiner is a bit inconsistent.
It really depends from whose point of view we are looking at it. After the takeover, the share price of the acquiring company will change due to synergy, change of PE etc..
The acquiring company is able to estimate the new share price and so they will base their decision on this. The shareholders of the target company, however, will not have access to this information and therefore they will base their decision on the existing share price of the acquiring company.
Unless the question specifically says from whose point of view we are looking (and neither of these do say specifically, although the marks allocated give a clue as to how much work is expected), then state your assumptions and you will get the marks. It is rare in AFM for there to be only one correct answers – so much depends on your assumptions and you must always state them clearly 🙂
Thank you very much !! Very clear cut!!!
You are welcome 🙂