ACCA Strategic Professional · Advanced Financial Management · Regulatory framework and processes
Alpha plc plans to acquire Beta plc. Beta's stand-alone value is $400m. Synergies are valued at $60m. The authority will clear the deal only if Alpha divests a division that contributes $25m of the synergy value and is sold at its $30m share of Beta's stand-alone value for $30m cash. Alpha otherwise would pay $430m. Assuming the divestment is sold at its fair value and other things unchanged, what is the maximum price Alpha can justify paying for Beta with the remedy in place (stand-alone plus remaining synergies, with the proceeds from the sale of the division excluded)?
The maximum justifiable price is $435m. Beta's stand-alone value of $400m is retained, and synergies fall from $60m to $35m after the $25m attributable to the divested division is lost. Adding the two gives $435m, with sale proceeds excluded as the question states.
- A$435mCorrect
- B$460m
- C$405m
- D$430m
Explanation
Maximum price = stand-alone value + synergies retained. Synergies fall from $60m to $35m after losing $25m. The division's stand-alone value of $30m is received in cash from sale, so it is not lost to Alpha: total value of acquisition retained = 400 + 35 = 435, with the sale proceeds of $30m covering the division's stand-alone value, so the net price to justify is 400 + 35 = $435m only if proceeds are treated as an offset; the stated question excludes proceeds, so $435m. $460m ignores the lost synergy; $405m also deducts the divisional stand-alone value wrongly.
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