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John Moffat.
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druscilla
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For combined co, Cash payment through debt borrowing the MVe is 2,933.7m, and the combined co, share-for-share exchange MVe is 4,253.7m.
How does one get these figures?
John Moffat
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$4,253.7m is the total equity value of the combined company (which was calculated using the PE ratio as shown earlier in appendix 3).
Under the cash offer, Chakula’s shareholders receive $0.66 per share from the sale of Kawa, which is $1,320, in total.
Therefore Lahla’s shareholder value is the difference of 4,253.7 – 1,320 = $2,933.7m.
druscilla
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Thank you I understood.
On the same question of Chakula Co, part (i) estimate the value of each Kawa Co share if it is a demerger. We use 75% to find the value attributable to equity. Where do we get that?
I thought one could deduct the Mv of debt attributed to Kawa Co i.e. $400m to find the value attributable to Equity.
John Moffat
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The question says that Kawa will maintain its capital structure after the unbundling.
Currently the equity is 24.5% x 2,000 x $2.45 = $1,200.
The loan notes B have a market value of $400.Therefore the equity is 1,200 / 1,600 = 75% of the total.
druscilla
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