Kerrin Co 2019 Sep

Future maintainable earnings is the same as PAT. What you call it in the exam is irrelevant :-)

Evening john. Just out of curiosity as i'm not able to fully understand the reason behind of the calculations. Hope u don't mind to explain to me the reasons and logic behind it so that i wouldn't be confuse anymore. 1) Part b, On share exchange basis, why do we have to use the additional value created (different between value of combined company and both individual company) instead of combined company value, to deduct the premium so that we can arrive at post merger valuation? 2) Another problem is the answer scheme. There is "share exchange calculation" part (SEC) and towards the end there is "impact on shareholder" part (IOS). As u can see, it already stated in the SEC part about the pre acquisition value and post merger value. cant we just use that value to identify the percentage gain in SHH? for example, Kerrin co, on the SEC part, the gain should be 2% ((4041.2/3960)-1) but in the IOS part, the answer is 1.7%.. Is the 2% figure acceptable or totally wrong? I hope u can rectify my problem and wish u could explained further. Thankyou for your time and stay safe! wish u well

1. The shareholders in Danton want a 30% premium on the value of their existing shares and so the need to get shares in the combined company that are worth 1,920.5 (giving them a premium of 443.2). We know that the total gain resulting from the takeover is 524.4, and this gain is shared between the existing shareholders of Kerrin and the shareholders in Danton. So the total post-acquisition value of all shares in Kerrin must be 3960 + 1477.3 + 524.4 = 5961.7. All the shares existing after the takeover (the existing shares in Kerrin plus the new shares issued to Danton's shareholders) must obviously have the same MV per share, so knowing how much each 'block' of shareholders must end up being worth determines the number of new shares issued and hence the share-for-share ratio needed. 2. Yes, the 2% would be acceptable. The difference arises because the 18 shares for every 7 is only approximate. The examiner has used this ratio in arriving at the 1.7% and the difference is due to the rounding (because it isn't exactly 18 shares for every 7 :-) )

1. The working appear as the last line under the heading 'Post-acquisition valuations' in the answer. ("value created based on synergies") 2. See my reply to the following post: https://opentuition.com/topic/free-lecture-on-share-for-share-exchange-calculation/ 3. See the working in the second line under the heading "Advice on terms of share-for-share offer". There are 750m existing Kerrin shares plus 350m new Kerrin shares issued to Danton shareholders. 750 + 350 = 1,110.

It is 360m new Kerrin shares issued - sorry, it was my typing mistake. Yes 360 is 140 x 2.57 with rounding. I am afraid that I don't recognise the other figures you mention - I only have the original examiners exam question and answer.

What you have written is correct :-)

Hi John, If share exchange amounts to 2.55:1- where is the 18:7 coming from? I understand 18/7 = 2.55 approx. How is the 18:7 being calculated? Thanks

Giving 18 new shares for every 7 existing shares is the same as giving 2.55 new shares for every 1 existing share (for the reason you have stated). It is just nicer stating it as 18 for 7 (because they are whole numbers rather than fractions of shares), although it is not essential to state it that way in the exam.