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Hi Sir,
In most exam type quest. when the target is paid through a share exchange how does it really work.
For example in the dec 2018 paper question 1 the target company has 2000 shares. These shares are already owned by shareholders. If they acquire a firm by share exchange (which means they give their existing shares to new shareholders) what happens to the existing shareholders.
There is almost never rights issue involved in the exam questions.
A share for share exchange means that the predator company issues new shares and gives them to the shareholders in the target company. The existing shares in the target company are cancelled.
If new shares are given then the total shares of the predator company post acquisition will increase right. But that never happens in these exam questions. For example in the question I mentioned above the no. of shares are 2000 before and after acquisition.
No there are not. They issue an extra 526m shares.
The answer calculated how much of the additional value goes to the existing shareholders (320.4m) and divided by the existing number of shares (2,000m) to find out what the new value per share is. Then they can calculate how many new share need to be issued.
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