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Hi,
Suppose the consideration for an acquisition is made through a share exchange, the value gain for the target company shareholder per share is as follows
[ (share price of predator * No.of shares received) – (Current Share price of the target *
No. of shares given) ] / No. of shares givenThis will give the value gain to the target share holder per share.
My concern is should the share price of the predator considered be post acquisition or pre-acquisition.
I have seen both methods in the revision kit.
Thanks.
For shareholders of the target company we would normally use the pre-acquisition share price of the predator. This is because the shareholders of the target will not have the information needed to determine what the post-acquisition share price will be and will therefore base their decision as to whether to accept the offer or not on the pre-acquisition price.
When the predator company is considering how much they can offer for the target (or how much gain they will make from the acquisition) then for that purpose they will be estimating the post-acquisition value because they will have the information needed.
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