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Sir…first, thank u for anwering the previous query. as usual..much appreciated
usually in questions we look at how much of the synergies are going to the target and the predator. this question did not ask for it but i did it for practice and i wanted to kknow if my workings are correct:
synergies=140m. strand’s pre-acq share price: 4.77
CASH OFFER: % gain=19.8%. this means 4.77×19.8%x140=132.22m
this means 94% of synergy gains will go to Strand.1. pls let me know if what i have done is correct and
2. why has the answer not talked about this point in this question?
3. can we always assume that value of synergies will ONLY be known to the predator?regards
What you have written is fine.
The important thing for the exam is to state what you have assumed. Often it is not complete clear from whose point of view you are looking it from, in which case you would get full marks.
If the examiner has made it clear (but you have misread) then OK you would lose some marks, but you would still get pass marks 🙂
And yes – you would assume always that the predator is in a position to estimate the potential benefit, whereas the shareholders in the target company are not 🙂
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