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Can you please explain requirement “c” in that particular question. I did not understand what’s happening or the answer given in bpp kit.
Secondly is the article in ACCA website on Islamic finance important ??Also sir I have another doubt, this might be a very silly one, but I am not able to understand what it means when the question says “offer one of its shares for two shares currently held” or “offer two of its shares for five shares currently held”.
I’m finding it difficult to understand how to go about it. Please can you provide detailed explanation or refer a video that clears my doubt on this.As far as your first question is concerned, you really need to be a bit more specific about what it is in the answer you are not clear about. If they need to pay more to acquire Nuvola because of having to pay a higher premium, then they will need more funds.
I do not ever expect Islamic Finance to be more than ever part of a question, but it certainly could well be asked. I doubt it would ever involve any calculations but it is worth reading the article. You are unlikely to ever need more than is in our free lecture notes and obviously the lectures working through the notes.
If the offer is one share for every two that are already held, then it means that is you (as a shareholder) currently own two share in your company then after the takeover your shares will be cancelled and instead you will own one share in the company that is taking over.
Similarly, in your second example, if it is a two for five offer, then for every five share you currently own, those shares will be cancelled and instead you will have two shares in the acquiring company.
There is no specific lecture on this, but it is covered in papers FA and FM (although I hardly think you need to look for those lecture because what I have already written should (hopefully!!) make sense 🙂
Similarly, in your second example, if it is a two for five offer, then for every five share you currently own, those shares will be cancelled and instead you will have two shares in the acquiring company.
As per what you said above, then it would be considered bad right? since I am losing my 5 shares as its cancelled and getting only 2 shares in the acquiring company? So my total number of shares will only be 2 that relates to the acquiring company.
Also from what you said, in question Q 28 Makonis BPP, the scenario states “Makonis Co has offered to acquire Nuvola Co. through an offer of one of its shares for two Nuvola shares and M company has 210m shares in issue and N company has 200m shares in issue” – Can you please explain this above statement to get a better understanding.Also in requirement (c) I did not understand how they calculate the additional funds required.
Your first sentence is correct.
However why on earth would that be considered ‘bad’? If 2 share in the acquiring company are worth more that the 5 shares previously owned, then you would be very happy!!If Nuvola currently has 200m share in issue then Makonis will have to give the shareholders in Nuvola a total of 2 x (200/5) = 80m shares in Makonis.
With a 30% premium, Nuvola’s shares are being valued at $624m. With a 50% premium they are being valued at $720m. This is an extra 720 – 624 = $96m.
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