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Dear, Mr Moffat
1) Post bid is an occurrence when offer has been made by the acquiring company but not yet accepted by the target?
2) In appraisal if the question states assume all cash flows occur at the start of the year as opposed to end of the year. How would this impact the answer
3) This question may seem odd. If directors are to work in the best interest of shareholders, something so stressed upon. When directors foresee an offer which is in the best interest of shareholders why not negotiate instead of letting it go to a hostile takeover situation. Letting it go to a hostile situation indicates that they are preserving themselves rather than thinking or working whats best for shareholders. I do not have exposure of such board meetings of a takeover hence seeing it either as black or white. Kindly bring the grey matter to my attention.
4) Can there be a conflict of interest between directors and shareholders of an acquiring company or is this something not applicable as the decision to takeover is carried after a mutual understanding ?
5) I came across abbreviations OFR and TARA in the examiner report. What are these
6) In a reverse takeover article i do not understand the price risk paragraph. That shareholders might dump there shares and need some safeguard. I totally dont get the relevance. If the acquisition is to proceeded why does it matter what does the ex shareholder do
1. Yes
2. The flows would be 12 months earlier. 0, 1, 2 etc when setting up the cash flows are not years – they are points in time that are 1 year apart as I stress in my lectures.
3.Directors should act in the best interest of the shareholders, but often they act in their own interest instead which might be different. This is the agency problem.
4. Yes there can be a conflict.The might be acquiring a company when it is not in the best interests ff their shareholders.
5. They are not standard acronyms. Tell me which examiners report you are referring to.
5) September 2019
In determining the project’s APV, many candidates correctly calculated the financing side effects or were given OFR marks based on the method applied. Some candidates mistakenly discounted the financing cash flows using the all equity cost of capital, instead of using the company’s normal borrowing rate.
5 ) In part (d), candidates were required to discuss how the risks categorised may be managed. This part of the question was generally not done well. Candidates often did not discuss beyond the TARA definitions and few candidates suggested practical measures other than insurance. Some candidates mixed up the TARA model, others made vague suggestions on how to manage each risk.
OFR is the ‘own figure rule’. As always in the ACCA exams if you make a mistake then you do not lose marks twice. So if you calculate a figure wrongly you obviously lose marks, but you can still get later marks by using your figure correctly in later calculations or discussion.
I have no idea what tara stands for, but it is irrelevant because you cannot be asked what it stands for. It is clear what the question was asking and it is clear from the examiners answer what was required.
6. The ‘ex-shareholders’ are given shares in the new company in a share for share exchange. If a lot of them start selling their shares then it might result in a drop in the share price of the new company.
In response to number 6. Here is how I see the picture.
Let’s say 10 shares are in listed company initially
Now it is going to be reversly l taken over by another company when it issues new shares let’s say 40.
Now those 10 initial shareholders start selling. As there would be less number of shares per value of the company. The value of company per share would actually rise. As the denominator is less now.
Plz correct me where am I going wrong
The number of share in issue will not change. If an investor sells shares then they sell them on the stock exchange to other investors.
As always, if more people are wanting to sell than buy then the price falls (just as if more people want to buy than sell the price increases).
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