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John, will you help me with this please?
If predators share price is currently £2 and they offer the target company’s shareholder 1 share for their 1 share. Then is the valuation of the offer £2 or will it be lower than £2 given that the MV of the predator will stay the same but the number of shares in the predator will have increased?
Thanks
RobertHold on! Although the predator will have more shares in issue, the total value of the predator will increase because they now own the target!
Shareholders in the target will likely regard the offer as worth $2, but when the predator decides how many shares they can afford to offer they will be taking into account any synergy benefits they foresee (which would make the total market value higher after the acquisition).
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