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Q3 -Dec12 (Sigra):
Method 2: An offer of three of its shares for two of Dentro Co’s shares.
Q2 -Jun13 (Hav Co):
(ii) A cash offer of $1·33 for each Strand Co share plus one Hav Co share for every two Strand Co shares;
Both required estimation of percentage gain for the target company:
For Sigra question, each of the three offered shares was valued at price of the combined company ($3.644 per share) but for Hav Co question the one offered share was value at price of the predator company ($9.24 per share).
My thought was that the valuation of the offered shares should be at price of the combined company to calculate the gain just to include the positive effect of the synergies, therefore for Hav Co question could have been combined company share price and not $9.24. Why is not that in Hav Co question? and why this different treatment in both questions asking for the same thing?
It depends from whose point of view you are being asked to view it.
If we are looking at it from the point of view of the target companies shareholders, then they will not know what the future synergy benefits will be, and will be looking at the existing share price of the acquiring company.
If we are looking at it from the point of view of the acquiring company, then they will know about the synergy benefits and will be estimating the new market value when deciding how much to pay.
If you are not sure from the wording of the question, then do state what you are assuming and you will still get most of the marks.
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