Skip to content

ACCA Strategic Professional · Advanced Financial Management · Financing acquisitions and mergers

Bravo Co (10 million shares, price $8.00) plans to acquire Delta Co (4 million shares, price $5.00) by a share exchange. Delta shareholders are offered a 30% premium over the current price, paid in Bravo shares valued at $8.00. What exchange ratio, in Bravo shares per Delta share, is implied?

The implied exchange ratio is 0.8125 Bravo shares per Delta share. A 30% premium lifts the offer to $6.50 per Delta share, and dividing by Bravo's $8.00 price gives 0.8125. Omitting the premium would give only 0.625.

  1. A0.8125 Bravo shares per Delta shareCorrect
  2. B0.625 Bravo shares per Delta share
  3. C1.3000 Bravo shares per Delta share
  4. D0.4808 Bravo shares per Delta share

Explanation

Offer value per Delta share = $5.00 x 1.30 = $6.50. Ratio = $6.50 / $8.00 = 0.8125. 0.625 omits the premium. 1.30 uses the premium as the ratio. 0.4808 divides $5.00 by $10.40 (a wrongly grossed-up price).

Did you get it right without looking?

One question tells you little. A timed set on Financing acquisitions and mergers shows your real accuracy, how long you take and where you lose marks.

Practise Financing acquisitions and mergersFree diagnostic mock

More Financing acquisitions and mergers questions