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Part c)ii) Solution
MV of equity under cash offer $2933.7m
MV of equity under share-for-share offer $4253.7m
Please explain how to arrive at the above answers.The equity value of the combined company is $4,253.7m (using a PE valuation as shown in Appendix 3.
If a cash offer then Lahla has to pay $1,329m to Kawa’s shareholders, which leaves 4253.7 – 1320 = $2933.7m as the value of Lahla’s shares.
If instead there is a share-for-share offer then no cash is paid out (just more shares issued) and therefore the total value of the shares is the full $4,253.7m.
Is the thinking behind the $2933.7m a “free cash flow to equity” basis, rather than a double entry basis?
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