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Hav Co. June 2013 Past Exam paper

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Hav Co. June 2013 Past Exam paper

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.
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  • May 29, 2014 at 12:29 pm #171634
    fngacca
    Member
    • Topics: 18
    • Replies: 3
    • ☆

    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. 29603/3000

    May 30, 2014 at 10:41 am #171863
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    The 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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