P4 – Q1 Metaxi & Darma

Hi John, Hope you are fine! Could you please advice if I can get the full Question No.1 below that was tested in June 2017?

Q1 Metaxi (Predator) & Darma (Target)
(A) why acquisition fail and how to ensure acquisition do not fail. (- Growth by Acquisition vs. Organic growth)
(B) Evaluate the impact of a proposed acquisition, payment of the acquisition and impact of a cash payment on dividends and dividend policy.
(i) estimate Darma co current value VE/ Current share price of Target co. and estimate additional value created from the acquisition. Estimate the value of an unlisted target company based on free cash flows and then estimate its value with synergy benefits based on the PE ratio. Since the cost of capital was given but not the cost of equity, candidates needed to estimate the FCFF first and then deduct debt to get to FCFE.
(Ii) estimate number of share exchange for the share exchange offer method. Distribute the synergy benefit between the acquirer and the target in order to estimate the share-for-share exchange ratio.
(iii) calculate percentage gain for the cash and share exchange method. Estimate the percentage gain in value resulting from the synergy benefits to the acquirer and the target firms based on cash offer and on share-for-share offer.
(iv) discuss the shareholders reaction and state assumption – Discuss the assumptions made in the estimations and the likely reaction of the two companies’ shareholders to the cash and the share-for-share offers.
(v) estimate cash available from operations to fund cash payment method
(vi) impact of reduction of dividend – Dividend policy of retention for investment by not paying off dividends is good or bad