Hi John,
Usually when we are calculating additional value created for equity holders, we deduct premium paid from the value of the combined company as well as the separate equity values of the target and acquirer. In this question,part (a), we have just deducted values of both company equities from combined company equity, and not the premium. Can you please tell why is that?
Ask the Tutor ACCA AFM
Makonis Co Dec 2013
7y ago#1Whatever premium is being paid is a benefit to the shareholders of the company being acquired and therefore affects how much of the benefit goes to them and how much goes to the shareholders of the acquiring company. The total benefit to all shareholders is the same regardless of how much premium is paid.
So the total benefit is the new total value, less the total of the current values of the two companies.
It is in parts (b) and (c) of the question that we consider how much of the benefit goes to the shareholders of Makonis, and that depends on how much of it goes to the shareholders of Nuvola (which depends on the premium paid).
got it, many thanks!
7y ago#3You are welcome :-)
This topic is locked — no new replies.