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Hi John
Can you please explain the rationale behind this calculation:
Kerrin Co new share issue 750m/2.1 = 357.14m
I understand that 2.1 is the relative valuation on the post-acquisition valuation (i.e. 4,041.2/1,920.5)
But then why divide the existing shares of Kerrin Co 750m by 2.1 to derive their new share issue?No of existing shares Danton 35m/.25 = 140m shares (I understand this no problem)
Therefore share-for-share offer 357.14m/140m – I do not understand this calculation and how they derived the 18 Kerrin Co shares for every 7 Danton Co old shares
357.14m/140m = 2.55, so how do they get to 18 Kerrin Co shares?
I must be missing something here….Can you please explain this more clearly please?
Thank you.
After the acquisition the total value of the existing shares in Kerrin will be 4,014.20, and the value of shares given to Danton is 1920.5.
There are 750m existing shares in Kerrin (375/0.5) and therefore the new MV per share is 4,014.20 / 750 = $5.352.
Given that all shares after acquisition will have the same value per share, it means that the number of shares given to Danton’s shareholders is 1920.5 / 5.352 = 358.74m
Danton currently has 140m shares (35/0.25), and so they are getting 358.74 new shares for every 140 existing shares. Therefore they are getting approximately 358.74/140 = 2.56 shares in Kerrin for every 1 share they currently own in Danton.
You could leave it at that and get the marks. However that is approximately the same as 18 new shares for every 7 existing shares (18/7 = 2.57).
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