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Equity value prior to acquisition :
tai co = 1000 , no. of shares = 263 , value per share = 3.80
Opao = 5000 , no of shares = 2000 , value per share = 2.5Equity value of combined co after acquisition: 6720m
While calculating the % gain for the shareholders under the cash offer ( 4.40 for each tai co share) the examiner has used the following method :
Tai Co shareholders, percentage gain
($4.40 – $3.80)/$3.80 = $0.60/$3.80 = 15.8%—————————————————————————-
Would I lose marks if I did as follows?
Combined equity value = 6720
value to Tai co shareholders = 1157.2 (263*4.40 )
pre acquisition value of tai co = 1000So % gain = 1157.2/1000 = 15.72%.
Although you would get some marks, you would not get full marks.
The reason is that it ties in with part c (iii) of the question which asks for the likely reaction of Tai’s shareholders to the offer. They will not have the information needed to estimate the new share price of the combined company and so will be simply comparing the amount of the offer with their current share price.
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