Company P has 4 million shares in issue and Company Q 12 million. On day 1 the market value per share for Company P is £3.50, and for Company Q is £5.00. On day 2, the management of Company Q decides at a private meeting, to make a cash takeover bid for Company P at a price of £5.00 per share. The takeover will produce large operating savings with a value of £12 million. On day 4, Company Q publicly announces an unconditional offer to purchase all the shares of Company P at a price of £5.00 per share with settlement on day 20. Details of the large savings are not announced and are not public knowledge. On day 12, Company Q announces details of the savings, which will be derived from the takeover. Required: Ignoring tax and the time-value of money between days 1 and 20, and assuming the details given are the only factors having an impact on the share prices of Company Y and Z, determine the day 2, day 4, and day 12 share prices of Company P and Company Q if the market is: Semi-Strong Efficient. Strong Form Efficient. In each of the following circumstances: a)The purchase consideration is cash as specified above, and b)The purchase consideration, decided upon on day 2, and publicly announced on day 4, is one newly issued share of Company Q for each share of Company P.
Company P has 4 million shares in issue and Company Q 12 million. On day 1 the market value per share for Company P is £3.50, and for Company Q is £5.00. On day 2, the management of Company Q decides at a private meeting, to make a cash takeover bid for Company P at a price of £5.00 per share. The takeover will produce large operating savings with a value of £12 million. On day 4, Company Q publicly announces an unconditional offer to purchase all the shares of Company P at a price of £5.00 per share with settlement on day 20. Details of the large savings are not announced and are not public knowledge. On day 12, Company Q announces details of the savings, which will be derived from the takeover.
Required:
Ignoring tax and the time-value of money between days 1 and 20, and assuming the details given are the only factors having an impact on the share prices of Company Y and Z, determine the day 2, day 4, and day 12 share prices of Company P and Company Q if the market is:
-
Semi-Strong Efficient.
-
Strong Form Efficient.
In each of the following circumstances:
a)The purchase consideration is cash as specified above, and
b)The purchase consideration, decided upon on day 2, and publicly announced on day 4, is one newly issued share of Company Q for each share of Company P.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 6 images
