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Hi John,
In a share for share exchange we take out the price of the combined company and that is used to find the share price of target company.Like in sigra (Dec 2012), we calculated the equity value of combined company and then used to find out the gain in the value of dentro share in a share for share exchange.
Why are we not doing the same for Tidded Co. That is, why are we not in the share for share exhange using the combined company share price to find out implied P/E ratio. Why are we just using the share price of Louieed rather than the share price of combined company?
It really depends whether we are looking at it from the point of view of the acquiring company (who will be able to forecast the new share price of the enlarged company) or whether we are looking at it from the point of view of the shareholder in the company being acquired (who will not have that information and so are looking at the current share price).
If it is not clear which from the question, then state your assumption and you will still get the marks.
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