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ACCA Strategic Professional · Advanced Financial Management · Valuation for acquisitions and mergers

Acquirer Zeta has 100m shares at $5.00 each (market value $500m). Target Omega has 40m shares at $2.50 each (market value $100m). Zeta offers 1 Zeta share for every 2 Omega shares. Synergies have a present value of $30m and the market recognises them in full once the deal completes. What is the post-deal share price of Zeta, and who gets the larger share of the gain per original share held?

The post-deal price is $5.25: combined value of $630m divided by 120m shares. Both groups gain 5%, because the exchange ratio values Omega at its current market price and synergy is shared pro rata to value.

  1. A$5.25; Omega shareholders gain a larger percentageCorrect
  2. B$5.00; Omega shareholders gain all of the synergy
  3. C$5.25; Zeta shareholders gain a larger percentage
  4. D$5.50; Zeta shareholders gain all of the synergy

Explanation

Shares issued = 20m, so total shares = 120m. Combined value = 500 + 100 + 30 = $630m, price = $5.25. Zeta holders gain 0.25 per share (5%). Omega holders receive 0.5 Zeta share worth $2.625 versus $2.50, a gain of 5% as well, so check: 0.125/2.50 = 5%. Equal percentages would apply, so recompute carefully: the premium offered at $5.00 was $2.50 per Omega share, equal to market value, so both gain pro rata at 5%.

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