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Hi John,
Why in this question do we not consider the combined companies equity value which.
The value of the combined company equity is 3669.90* 60%=2201.94
2201.94/310m shares= 7.10 if this figure was used we would be paying more then 30% premium and just under the 50% so only the 50% will require cash.
Please let me know why they used the 5.80 which is the value of the purchasing company equity before the combination?
Kind Regards,
If you are a shareholder in Nuvola, then the premium you will receive is the % excess over the current value of your shares.
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Ahh Thank you John, I understand that but whats confusing is that in other questions, Im guessing done by the same examining team- Sigra Co (12/12) and Hav Co(6/13) both used the after combination values…..granted Hav Co does say it allows for both possibilities.
If I had used the after combination value would i have gotten full marks for makonis co question?
Thanks again.
It all depends on the wording – whether you are asked to look at it from the point of view of the shareholders in the company being acquired, or from the point of view of the company doing the acquiring.
Having said that, you will still get credit if you have read it a different way 🙂- Topics: 43
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Thank you John,
Just want to make sure my understanding is correct with this question if i did do it using the post acquisition value in terms of calculating.
1:2 Share exchange
Equity Value per share combined company: 2201.94/310=7.10
7.10-4.80(2.40*2)=2.30
2.30/2=1.15Strand Co Gain: 7.10-4.80/4.80=47.9%
SO the premium per share is 480*0.30 =144/200=0.72
If premium is 50% it will be 480*0.5 = 240/200= 1.20
so it is only with a premium of 50% will the buyers have to pay extra cash
You would get credit for this, but for full marks you would be expected to view it in the way that the examiner has done.
- Topics: 43
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Thanks John,
1) Just one last thing regarding what point of view to use, how would we know which point of view to use, this question was not clear
2) Depending on the point of view which share value do you use, pre or post acquisition share values?, so if we are viewing it from the buyers point of view do we use the pre share value or post share value and then the opposite if we are viewing it from the sellers/company being purchased point of view?
Kind Regards,
What you have written is correct – if in the exam you are not sure from who’s point of view then state what you have assumed 🙂
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Thank you John,
Regarding my second question above what are the share values(pre or post) you would use for the different point of views(buyer and sellers)
Sorry.
If it is from the buyers point of view in terms of the most they can afford to offer, then you would use the post-acquisition value (because the buyer is likely to know forecasts as to what will happen after the acquisition).
If you are looking from the sellers point of view (or if the buyer is trying to estimate the minimum that the sellers are likely to accept) then you would use the pre-acquisition value (because the sellers will not have the forecasts).
- Topics: 43
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Perfect 🙂 thank you John
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