Kunla Ltd and Cunta Ltd intend to merge. The following were observed just before the merger announcement. Kunla Ltd Cunta Ltd Market price per share GH¢ 400 GH¢200 Number of shares 2,000,000 1,000,000 Market value of firm GH¢ 800,000,000 GH¢ 200,000,000 The proposed merger will create GH¢50,000,000 in synergies. Kunla Ltd intends to pay GH¢ 130,000,000 cash for Cunta Ltd. What is the cost of the merger to Kunla Ltd? Compute the NPV of the merger. The managers
Kunla Ltd and Cunta Ltd intend to merge. The following were observed just before the merger announcement. Kunla Ltd Cunta Ltd Market price per share GH¢ 400 GH¢200 Number of shares 2,000,000 1,000,000 Market value of firm GH¢ 800,000,000 GH¢ 200,000,000 The proposed merger will create GH¢50,000,000 in synergies. Kunla Ltd intends to pay GH¢ 130,000,000 cash for Cunta Ltd. What is the cost of the merger to Kunla Ltd? Compute the NPV of the merger. The managers
Chapter23: Corporate Restructuring
Section: Chapter Questions
Problem 7P
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Question
Kunla Ltd and Cunta Ltd intend to merge. The following were observed just before the merger announcement.
|
Kunla Ltd |
Cunta Ltd |
Market price per share |
GH¢ 400 |
GH¢200 |
Number of shares |
2,000,000 |
1,000,000 |
Market value of firm |
GH¢ 800,000,000 |
GH¢ 200,000,000 |
The proposed merger will create GH¢50,000,000 in synergies. Kunla Ltd intends to pay GH¢ 130,000,000 cash for Cunta Ltd.
- What is the cost of the merger to Kunla Ltd?
- Compute the
NPV of the merger. - The managers of these firms have proposed to merge to diversify their activities and to reduce risk. Should you pay a premium for the merged firm?
- What convincing reasons can these managers give for the proposed merger?
- What roles do investment banks play in facilitating M&A deals?
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