CMA Final · Strategic Performance Management and Business Valuation · Valuation in Mergers and Acquisitions
Alpha Ltd plans to acquire Beta Ltd. Standalone value of Alpha is Rs 500 crore and of Beta Rs 200 crore. The combined firm is expected to be worth Rs 760 crore. Alpha will pay Rs 240 crore in cash to Beta's shareholders. What is the net gain to Alpha's shareholders from the merger?
The net gain to Alpha's shareholders is Rs 20 crore. Synergy is 760 minus 700, which is Rs 60 crore, and the premium paid over Beta's standalone value is Rs 40 crore, so Alpha keeps the remaining Rs 20 crore.
- ARs 20 croreCorrect
- BRs 60 crore
- CRs 40 crore
- DRs 120 crore
Explanation
Synergy = 760 - (500 + 200) = Rs 60 crore. Premium paid = 240 - 200 = Rs 40 crore. Net gain to Alpha = 60 - 40 = Rs 20 crore. Rs 60 crore ignores the premium; Rs 40 crore is the premium itself.
Did you get it right without looking?
One question tells you little. A timed set on Valuation in Mergers and Acquisitions shows your real accuracy, how long you take and where you lose marks.
More Valuation in Mergers and Acquisitions questions
- In valuing a target for a merger, the acquirer's analyst adds the present value of cost savings and revenue enhancements expected only after…
- In valuing a target company for an acquisition, the 'synergy value' of the deal is best defined as:
- When using the comparable company multiple method to value a target in an acquisition, which adjustment is most appropriate before applying …
- In valuing a target company for a merger, the acquirer's analyst identifies that the combined firm will save Rs 12 crore annually in overhea…
- Surya Ltd. has 10 lakh shares at a market price of Rs 80 and plans to acquire Tara Ltd., which has 4 lakh shares at Rs 50. Surya offers Rs 6…
- In a merger valuation, a 'control premium' paid over the target's undisturbed market price is mainly justified by: