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1stly for cash offer why arent we taking synergy benefits while calculating the % gain, since it has been mentioned 30% synergy gain we attain
2ndly for sh for sh exchange, i didnt understand how the final % gain step has been done ..i.e
[($3.644 × 3 – $4.50 × 2)/2]/$4.50 × 100% = 21.5%
the *3 and *2 nd /2
why?The cash offer is at $5 per share and if the payment is in cash it is irrelevant to shareholders in Dentro what happens to the share price of Sigma after the acquisition.
If there is a share offer, then the new share price of Sigma is relevant.
For every 2 shares currently held in Dentro the shareholders will get 3 shares in Sigma.I someone holds 2 share in Dentro they are currently worth 2 x $4.50 = $9.
They will get instead 3 shares in Sigma and be worth 3 x $3.644 = $10.932So they will make a gain of $1.932 for every 2 shares they hold, which is 1.932/2 = $0.966 gain for every one existing share.
I have a question honestly that really has been confusing me, so under this question, I’m just trying to understand why when trying to decide the post acquisition value of the new company to begin with, aren’t we supposed to take the combined earnings of both companies multiplied by a p/e ratio? In this question, I noticed that no P/E ratio was given for the new company, so in questions where no P/E ratios for new companies are given, does that mean I can just combine both companies market values per their share prices pre acquisitions plus synergies to find the answer? Will that be the case in any question then in which no P/e ratio for the new company is given?
It all depends what information is available.
As you state, if we had been given the PE ratio after the acquisition then we could apply this to the total earnings.
If we had been given a future growth rate and a cost of capital after the acquisition, then we could have calculated the market value as being the PV of future dividends.
Here we are given none of that and so have no choice but to simply add together the two MV’s plus the synergy.
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