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Dear John
Could you help to explain what is the wording in question here that make the difference in below?
Because the approach used in share for share exchange are different:
Selorne is we revalued the share price of New company and calculated based on New Share price.
Louieed and Makoins we did not revalued share price of New company, all calculations are based on share price of the Buyer..This makes big difference in subsequent calculation and discussions. But I just can not confirm what is the wording that trigger the difference here..
Or should I just assume using share price of Buyer without reval of new company share price, unless question asking “Share of Gain”? Is this the key word here?Many thanks sir!
For Reference:
Selorne Sep 18
(a)(i) Estimate the share of Gain from combination created for Chris Chawon and the share of gain created for Selorne Co’s shareholders and comment on you results.Louieed Mar/Jun 16
(b) Calculate the P/E ratios of Tidded Co implied by the terms of Louieed Co’s initial and proposed offers, for all three of the above options.Makonis 12/13
(b) Estimate the impact on Makonis Co’s equity holders if the premium paid is increased to 50% to 30%.
(c)Estimate the additional funds required if a premium of 50% is paid instead of 30% and discuss how this premium could be financed.This often does cause confusion. Essentially it depends whether we are looking at things from the point of view of the acquiring company or from the point of view of the shareholders in the target company.
The acquiring company has the information available to be able to estimate what the effect on their share price will be after the acquisition. The shareholders in the target company will not have that information available and so will be using the current share price of the acquiring company when considering whether or not to accept the offer (and what gain they may make).
The wording does not always make it immediately obvious (especially and obviously in the middle of an exam when it is easy to read things too quickly and miss things). If you are unsure, then checking the number of marks available for that part of the question helps give a clue (it, for example, it is only 5 marks then you cannot be being expected to do many calculations). Also, of you are not sure, then always write down what you have assumed. Even if you have assumed wrongly, then you will still get credit for what you have done and should still be getting the needed 50% of the marks.
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