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hi,
1. (p/e ratio*pat) – does this give the value attributable to equity holders only? And just to confirm, the value attributable to debt and equity holders is found by FCF to firm?
2. Lahla Co’s new share price under the acquisition $2.44 based on 1200m shares. If the companys merged, why is the share pool not 3200 shares?
– under the share for share offer an additional 667m shares in Lahla were issued. Should the total number of shares in Lahla Co not be 3,867 (1200+2000+667)?
3. The value attributable to Lahla Co’s equity holders is 2,933, after deducting the additional finance raised. Considering the companies are now combined, why was the 400m of Kawa’s debt not included in that calc?
4. Additionally, if Lahla Co, being an unlisted company, acquired Kawa Co, which is a listed company – does Lahla Co now become a listed company?
Thanks
1. Correct to both 🙂
2. If Lahla buys Kawa then the shareholders are given cash or shares in Lahla, and the shares in Kawa are cancelled. So the 2,000 existing shares no longer exist.
3. The examiner has written a note about this at the very end of his answer as follows: In the above cases, when the two companies are combined, it is assumed that Lahla Co will continue to service loan notes B or cancel them by paying them off through an equivalent borrowing.
If you had assumed differently then you would still get credit.4. No. Kawa is only going to be a listed company if it is demerged as an independent company.
Lahla might decide to become a listed company but that is not necessarily the case.
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