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(solution) M&A Sample Question A Ltd is proposing to takeover T Ltd. The


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M&A Sample Question

 

A Ltd is proposing to takeover T Ltd. The details of each company are provided below.

 

Projected Figures

 

Earnings

 

Shares issued

 

Earnings per share

 

Market price

 

Net assets A Ltd

 

(Acquirer)

 

$500,000

 

500,000

 

$1

 

$3.00

 

$2,000,000 T Ltd

 

(Target)

 

$200,000

 

100,000

 

$2

 

$6.00

 

$250,000 There is a synergistic increment to earnings of $100,000 and to market capitalisation for the

 

combined firms of $500,000. A Ltd has made an offer to the shareholders of T Ltd whereby T

 

Ltd shareholders will receive 1 share in A for every 2 shares of T that they own.

 

How many shares in total will be on issue after the takeover?

 

What will the value be for the combined market capitalization?

 

What will be the value for earnings per share for the combined entity?

 

What will be the market price for each share in the combined entity?

 

What is the minimum exchange ratio that would be acceptable to T Ltd shareholders, such

 

that there was no dilution of their share price?

 

What is the minimum exchange ratio that would be acceptable to T Ltd shareholders, such

 

that there was no dilution of their earnings?

 


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