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In question b) when finding a suitable share for share Exchange offer, why do we not divide the value we find for Danton Co of $1920.5 m by the current share price of Kerrin $5.28 to find out the number of shares to be offered to Danton’s shareholders? What is the logic behind it?
The problem is that the current share price will change as a result of the acquisition.
After giving Dantin a 30% premium, the value of the original shares in Kerrin will be 4041.2 divided by the number of existing shares which is 375/0.50 = 750.
The new value per share of the existing shares in Kerrin will be 4041.2/750 = $5.388.
So as to give Dantin the 1920.5, they will have to issue them with 1920.5/5.388 = 356.4 shares. (This is a little different from the examiners answer but is due to roundings).
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