Hi
In D12Q3(a) and in J13Q2(c) they have asked to calculate the percentage gain on share,
why is the share exchange calculation for both defers,cant we use the method in J13Q2(c) to do the calculation in D12Q3(a) because we have the same input in D12Q3(a) as well such as share price
J13Q2(c) method:
Cash and share offer: premium (%)
1 Hav Co share for 2 Strand Co shares
Hav Co share price = $9·24
Per Strand Co share = $4·62
Cash payment per share= $1·33
Total return = $1·33 + $4·62 = $5·95
Premium percentage = ($5·95 – $4·76)/$4·76 x 100% = 25·0%
D12Q3(a) method:
Share-for-share exchange
Equity value of Sigra Co = 11,000,000 x $3·60 = $39,600,000
Equity value of Dentro Co = 1,250,000 x $4·50 = $5,625,000
Synergy savings = 30% x $5,625,000 = $1,688,000
Total equity value of combined company $46,913,000
Number of shares for share-for-share exchange
11,000,000 + [1,250,000 x 3/2] = 12,875,000
Expected share price of combined company $3·644/share
Dentro share percentage gain under share-for-share offer
[($3·644 x 3 – $4·50 x 2)/2]/$4·50 x 100% = 21·5%
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share exchange
9y ago#1It really depends from whose viewpoint you are being asked to look at it from.
The acquiring company will be able to estimate the future flows from the combined company and therefore be able to estimate the new share price after the acquisition. This will help determine the maximum they are prepared to pay.
The shareholders of the company being acquired will not have that information and will base the amount they are prepared to accept on the current share price of the acquiring company.
It is not always too clear in questions as to whose viewpoint you are being asked about. If it is not clear then state your assumption and you will still get most if not all of the marks.
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