ACCA Strategic Professional · Advanced Financial Management · Acquisitions and mergers versus other growth strategies
Alpha plc (market value $400m) plans to acquire Beta Ltd (stand-alone value $100m). Alpha estimates present value of synergies at $30m. Alpha offers $115m in cash. What is the net gain to Alpha's shareholders?
Alpha's shareholders gain $15m. The synergy is worth $30m, but Alpha pays a $15m premium over Beta's $100m stand-alone value for a $115m price, so the net benefit is $30m minus $15m.
- A$15mCorrect
- B$30m
- C$(15)m
- D$45m
Explanation
Combined gain from the deal = synergy $30m. Beta's shareholders gain the premium of $115m - $100m = $15m. Alpha's shareholders gain $30m - $15m = $15m. The $30m option ignores the premium paid, and $(15)m reverses the sign.
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