ACCA Strategic Professional · Advanced Financial Management · Acquisitions and mergers versus other growth strategies
Brandt Co has a value of $200 million as a standalone company. It plans to acquire Tello Co, valued standalone at $50 million, and expects synergies with a present value of $15 million. Brandt will pay $58 million in cash for Tello. What is the gain to Brandt's shareholders from the acquisition?
Brandt's shareholders gain $7 million. The synergies are worth $15 million, but Brandt pays a premium of $8 million over Tello's standalone value of $50 million, so the net benefit retained by the acquirer is the difference of $7 million.
- A$7 millionCorrect
- B$15 million
- C$8 million
- D$(8) million
Explanation
Total value gain = synergies $15m. Premium paid = 58 - 50 = $8m. Gain to acquirer = 15 - 8 = $7m. Option B ignores the premium; C is just the premium.
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