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Hello,
I have a doubt regarding the calculation of “relative valuation” (that results in the 2:1 share per share): it is based on the Kerrin Co and Danton Co values POST acquistion.
Can you please explain why?
I thought the share per share exchange was supposed to be based on the PRE acquisition values of the companies involved.Thanks in advance for your help,
Laura
It depends from whose point of view you are considering it.
As far as the acquiring company are concerned, they are able to estimate what will happen to the share price after the acquisition and so will base their decisions on this post-acquisition share price.
As far as the shareholders in the target company are considered, they do have that information and so they will base their decision as to whether or not to accept the offer based on the pre-acquisition share price of the acquiring company.
If you are unsure from the wording of the question then as always state your assumption and at least you will still get some marks 🙂
Sir when the question does not ask for assumption then where to state the assumption. the qs above ask for discussion so can we state assumption along with the discussion?
If you are making an assumption that affects the calculations then best to state the assumption below the relevant calculation.
Oh Okay. Sir I will be sitting for remote exam. Is it okay if i state my assumption on the spreadsheet as I will be doing my calculation on it.
Thankyou for helping me out Sir.
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