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Pre?acquisition valuation 3,960.0 1,477.3
Danton Co shareholders cash received:
$13.10 × 140m shares 1,834.0
Kerrin Co post?acquisition equity valuation:
$5,961.7m less acquisition cost of $1,834.0m 4,127.7
Increase in shareholder wealth 4.2% 24.1%
Pls explain this calculation part , why they have taken cash into consideration if we are are concerned about value change, is there alternative method of doing this calculation part?
The question asks for the effect of the cash offer on the two sets of shareholders.
Before the acquisition Danton shareholders were worth 1477.3, and after the acquisition they have cash of 1834.0. The difference is the amount that they gain as a result.
Similarly, before the acquisition, Kerrin shareholders were worth 3960.0. After the acquisition the combined company is worth 5961.7 of which 1834.0 is going to Dalton leaving the Kerrin shareholders with 4127.7. Again, the difference is the amount that the Kerrin shareholders are gaining.