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The value attributable to cigno co shareholders is really confusong me as per my concept they are asking about synergy benefits ie the benefits attributable to cigno co shareholders after acquisition …. ie Combined co value_equity value of cigno_equity value of anatra so
I calculated combined co value as 37480( 31887+5593) i deducted the MV of debt of 9000 to get MV of equity ie $22488
Now for synergy benefits
Combined co value …28480
Less value of anatra 21000
Less value of cigno 36000(60000*60%)
And den deducting the premium payable ( 21000*35%)
But i am not getting the right answer please correct me where i am wrong and how to get 128mThe combined company value is 37,478 (you have 37,480, but the rounding difference is irrelevant).
The total attributable to investors in Anatra is 21,000 + 9,000 + the premium of 35% x 21,000. A total of 37,350.
Therefore the amount attributable to Cigno is 37,478 – 37,350 = 128.
Hi John,
Sorry if a dumb question but I’m confused why the Debt (9,000) is included above (and in the solution)
When valuing companies aren’t we concerned only with Equity values? I’ve been doing a number of valuation questions and ive generally applied (and solutions have agreed):
Value created on combination=
(Equity of combination company AB (by whatever way given – FCFE, PE etc)
LESS
(Equity of company A pre-acq + Equity of company B pre-acq)So why are we introducing/concerned with a liability of company B pre-acq in this question?
Discounting the free cash flows at the WACC gives the value of the company (which is equity plus debt).
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