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Why in part c of this question does the answer double the number of shares for Tipped Co when looking at the share only take up option and for the split of share and cash option. Surely since Louieed Co is offering 2:1 we should be doubling the Louieed shares?
I understand all the other numbers just not the Tipped Shares
I assume you are looking at the calculations of what the new EPS will be for Louieed.
For that they need to know how many Louieed shares will be in issue in future.
Since they are giving 2 L shares for every T share, there will be 90 x 2 = 180 new Louieed shares.
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Thank you for reply John
Hi could anyone rectify me why we are not calculating the new shares issue for Louieed for the initial bid and through that we can calculate the PE for Tided as well
Given the initial bid is 5 Louieed shares for 3 Tided shares that make the share exchange basis is 5:3. By this we are going to have 150 new shares (5/3 x 90 shares of Tided).
Meaning total new number of shares will be 490 (340 + 150)Noted that the PE for Tided given in the question is 15.9 in the extract of f/s
By having Tided Eps of $1.42 ($128/90), we can calculate Tided share price before the merge which is $22.58Combining the value of Louieed = 4141.2 ($12.18 x 340)
value of Tided = $2032.2 ($22.58 x 90)
synergy tax value = $20That give a total value of $6193.4 and divided by total number of shares it will give a value of Louieed new share price which is $12.64
By this we can calculate the new share price for Tided which is $21.07 (5/3 x $12.64)
Thus the new PE for Tided is 14.8 ($21.07/$1.42)The answer scheme shows that it’s 14.3. Basically i’m using the approach in Siqra question and i’m so confused right now as why the answer is not the same
Hope u can help me rectify my problem here.
The question asks what PE for Tidded is implied by the initial offer.
The PE of Tidded is the value of the shares in Tidded divided by the earnings, and so the implied PE is the value Louieed is effectively placing on those shares.
The share price of Looieed will change, but shareholders in Tidded will not have knowledge of this and therefore they will be looking at what they will be getting based on the current value of Looieed’s shares when making the decision as to which offer to accept.
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