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Hi John,
I have got myself really confused on 3 areas
Q.1 What is the maximum price that an acquiring Co. should pay in a takover?
– Is it Value of Combined Co – Value of A(Acq. Co.) independently ?Q.2 How does the above value differ from Maximum premium to be paid?
– Is it (Value of Combined Co. – (Value of A(Acq. Co.) & B(Target Co.) independently) ?Q3. How do we calculate the Value added to/Increase in wealth of Acquiring Co’s shareholders?
– Is it (Value in Q1. – Cost of acquiring(value of B + premium) ) ?Thanks.
1. Yes.
2. Yes, except that obviously they would want to pay a little premium as they can (so that the rest of the benefit would go to their own shareholders). So if (for example) the question says what premium shareholders in the target company are wanting, then there is no point in offering them more 🙂
3. Correct 🙂
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