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“(ii) Estimate the share of the gain from the combination created for Chris Chawon and the share of the gain created for Selorne Co’s shareholders and comment on your results.”
sir as an answer to this question, i found out the synergy attributable to Chawan and selorne and divided their respective synergies with their pre-acquisition MV of equity, to find the gain %, which as per my calculation yielded a gain of 16.7% for chawn. Do you think i will not get full marks for what i did?
the examiner seems to have found out the synergy attirbutable to chwan and dividing it by total synergy from combination, and giving an answer of 27.8%.
You would get some marks, but not full marks.
How the gain is shared depends on how much is paid to Chawon (i.e. the value of the shares they receive).
sir if you re-read my approach to the question, you will realise i have done just what you are saying. But my denominator does not Match with the examiner. As he seems to have divided the syngery gains for chawan with total synergy generated and i have divided the synergy gains of chawan with MV of equity before acquisition, to find the incremental gain.
so then how would i know which one is right and which is to be followed? in all past questions(like Opao co., Kerrin co.) the gain for target’s shareholders has been compared with their pre-acquisition MV of equity, but here we have compared with the total synergy
It is because of the slight difference in the wording.
In Selorne the question asks for the share of the gain that goes to each, and the total gain that is being shared is 35.7.
In Opao the question asks for the % gain in value for each share, which is not the same thing.
Although obviously we do want to get a ‘correct’ answer, do not over-worry about it – such a small change in the wording is easily missed especially when rushing in the middle of an exam. The reason not to over-worry is that most of the workings needed remain the same and it is the working that get the marks – the final figure attracts minimal marks.
sir in order to play it safe, if we find both answers, using total synergy as denominator and pre-acq MV of equity as denominator, do we lose marks? or we should avoid doing it?
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