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I have some questions about the calculations of premium received by target company.
I have done some question practices before,but I noticed that there are two different ways to figure out the answer.
In the case of a share-for-share offer,some questions calculated the share price of group company which includes synergy and then minus the share price of target company before acquisition.(according to specified share offer proportion)
However,some questions just do in a easier way,they just use the share price of the parent company and then minus the share price of target(according to specified share offer proportion)
So I am wondering which one of them is more appropriate in exam circumstances.It depends on the wording of the question.
As far as the shareholders of the target company are concerned, they will not have knowledge of the synergy benefits and so will base their thinking on the existing share price of the acquiring company.
As far as the acquiring company is concerned, the will have knowledge of the synergy benefits and so will be able to base their offer on the estimated new share price.If it is not clear to you from the wording, then state your assumption and you will still get credit.
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