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Hello ,
For part b) max acq premium payable based on cash offer of 1.33 + 1 hav co share for every 2 strand co shares:
Can we calculate it based on post acquisition share price.
Value of combined co: 29,603
Total no of shares that Hav co now have:
2 s- 1 hav
1200 s- 600 hav
Total: 600/0.25 + 600 = 3000
S.price after acq: 29603/ 3000 = 9.87Cash offer: 1.33
Share offer: 9.87/2= 4.935
Existing share price : (4.76)
Gain: 1.505Doing what you are suggesting would certainly get you most of the marks.
However the reason the examiner uses the current share price of Hav is that although Hav has the information needed to be able to estimate their post acquisition price, the shareholders of Strand do not have that information. When considering whether or not they should accept the offer they will have no choice by to use the current share price of Hav to make their decision.
Since my next question is related to your answer above, I am continuing on the same thread.
Sigra co 12/12
Gain under share exchange – offer of 3 of its shares for 2 of dentro co shares.To calculate share price of combined co:
If we assume in this case too that the no of shares is: sigra: 11000 + dentro 1250 = 12,250,000 instead of 12,875,000 will it be correct?I know it is worded very similarly, but whereas in Hav it was asking about the reaction of Strand’s shareholders to the offer, in Sigra it is not asking this. It is effectively asking what the end result will be.
It can be confusing and if you are unsure from the wording of the question then state your assumptions and you will still get most, if not all, of the marks.
In the AFM exam it is rare for there to only be one correct answer because so much depends on assumptions (just as it does in ‘real life’). That is why it is vital to always state your assumptions (and why so many questions – especially question 1 in the exams – so often specifically ask you to state your assumptions.
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