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Hi ,
In Chakula MJ 21 , c ii) the impact on Lahla Co’s capital structure under each payment method
we deduct the cash consideration payable to the acquiree’s shareholders to arrive at the value of equity.But in Louieed co, we do not do so while calculating the impact on gearing.
May i know why?
The difference in treatment is due to the fact that the PE ratio will change depending on how the purchase is paid for.
In Chakula we have used the PE given in the question to get the total value of the equity (assuming that there is no cash payment). There is a cash payment and therefore the value of the equity will fall (as will the PE ratio afterwards).
In Louieed, the PE ratio has been calculated and takes into account the cash payment (and is lower as a result).
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