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Please let me know which of the following should I use in exam to calculate the purchase consideration to shareholders of seller co. in case where shares are offered to them (as purchase consideration) :-
1) Share price of Buyer co. before acquisition , or ;
2) Share price of combined co. after acquisition (share price post integration)Apart from Makonis Co. Dec 13 model answer (Part C) , everywhere share price post integration has been considered.
I did not understand why did Makonis Co. Dec 13 model answer (Part C) consider $5.8 (Buyer co.s share price before acquisition) to calculate the extra cash to be paid of $44m (in case of 30% premium) and $96m (in case of 50% premium).
Please help me here sir!
It depends whether we are looking from the point of view of the buying company (who decides how much to offer) or from the point of view of the target companies shareholders (who decide whether to accept the offer).
As far as the buying company is concerned, they are able to estimate that the affect on their share price will be and can calculate the post-acquisition market value.
The shareholders in the target company do not have access to that information, and will base their decision using the current market value of the buying company shares.
If you are not sure in the middle of an exam, state your assumption and you will still get some marks even if you have made the wrong assumption.
Thankyou Sir!!
Knowing that if I get stuck somewhere you will be there to save ,is a big relief sir!
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