Mergers and Acquisitions

This topic has 4 replies, 3 voices, and was last updated 4 years ago by John Moffat.

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July 25, 2021 at 5:50 pm #629404
naveez
Participant
- Topics: 17
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Sir one quick question.
How do we calculate the maximum premium payable for a target Company?

Ex: Lets say ABC acquired XYZ

Is the maximum premium payable calculated as,
[total value of the combined company – Current value of ABC]

or

[total value of the combined company – (Current value of ABC+Current value of XYZ)]

Pls Advise!
July 26, 2021 at 7:59 am #629439
John Moffat
Keymaster
- Topics: 57
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It is the second 🙂

That gives the total gain which is then shared between the shareholders of the two companies. It is the maximum premium given to the shareholders of XYZ which would mean that none of the gain was going to shareholders of ABC.
July 26, 2021 at 8:13 am #629447
naveez
Participant
- Topics: 17
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It should be the total equity value both the companies right not the total MV(which is equity+ debt)?
Thank you in advance for your explanation! Have a good day!
July 26, 2021 at 8:39 am #629455
Hameez2003
Member
- Topics: 1
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Then, how do we calculate the minimum premium payable to the Target Company?
July 26, 2021 at 12:33 pm #629471
John Moffat
Keymaster
- Topics: 57
- Replies: 54851
Naveez – right, and you are welcome 🙂

Hameez: The minimum is the amount that the target company demand. There is no rule for that – it depends on what the question says.
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