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In acquisition when we offer a share for share consideration then acquirer issues new shares in addition to its existing shares and its share price changes based on new firm value and new issued capital. So when we pay shares in consideration should we not use new share price in determining the consideration paid in the form of shares.
but here examiner used existing share price of Hav Co. rather using new value of firm after accounting for synergy benefits and additional earnings. i.e. 29603/3000The reason is a very fine difference in the wording.
If we are thinking about the shareholders of the company being acquired – which payment option are they likely to prefer – then it depends on what they think the value of the shares being offered will be. Since they will not know the information about the synergy benefits they are likely in real life to base their decision more on the current value of the shares in the acquiring company.
This is the assumption that has been made in the answer to this question.
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