The directors of Ted Limited, a hotel and leisure group operating along the coastal seaboard of South Africa have appointed you as a merger and acquisition specialist. They are considering the acquisition of Baker Limited. You are to advise them whether or not to proceed with the project.The following information is available:The market price per share for Ted Limited is R10.00 with 2 000 000 shares in issue and an earnings per share of R3.00. Whereas, Baker limited has 1 000 000 shares in issue with a market price of R8.00 per share and an earnings per share of R2.40.· Cash payment to Baker Limited = R25 million.· Synergy benefits of R13 million will accrue through the acquisition. Assume the acquisition is based on market values with a cash payment:3.1 Calculate the combined value of the proposed acquisition. (2 Marks)3.2 Determine the net present value of the proposal. (2 Marks)3.3 Calculate the acquisition premium. (2 Marks)3.4 Calculate the post-acquisition market price of the share (3 Marks)3.5 Determine the post-acquisition increase/decrease price of the share. (2 Marks)Assume the acquisition is based on earnings per share:3.6 Determine the exchange ratio based on earnings per share. (2 Marks)3.7 Compute the total number of shares in the proposed acquisition. (3 Marks)3.8 Calculate the post-acquisition earnings per share. (4 Marks)3.9 Calculate the benefits, if any, to the two parties. (5 Marks)
The directors of Ted Limited, a hotel and leisure group operating along the coastal seaboard of South Africa have appointed you as a merger and acquisition specialist. They are considering the acquisition of Baker Limited. You are to advise them whether or not to proceed with the project.
The following information is available:
The market price per share for Ted Limited is R10.00 with 2 000 000 shares in issue and an earnings per share of R3.00. Whereas, Baker limited has 1 000 000 shares in issue with a market price of R8.00 per share and an earnings per share of R2.40.
· Cash payment to Baker Limited = R25 million.
· Synergy benefits of R13 million will accrue through the acquisition.
Assume the acquisition is based on market values with a cash payment:
3.1 Calculate the combined value of the proposed acquisition. (2 Marks)
3.2 Determine the
3.3 Calculate the acquisition premium. (2 Marks)
3.4 Calculate the post-acquisition market price of the share (3 Marks)
3.5 Determine the post-acquisition increase/decrease price of the share. (2 Marks)
Assume the acquisition is based on earnings per share:
3.6 Determine the exchange ratio based on earnings per share. (2 Marks)
3.7 Compute the total number of shares in the proposed acquisition. (3 Marks)
3.8 Calculate the post-acquisition earnings per share. (4 Marks)
3.9 Calculate the benefits, if any, to the two parties. (5 Marks)
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