ACCA Strategic Professional · Advanced Financial Management · Valuation for acquisitions and mergers
Corvus Co (value $500m) plans to acquire Delta Co (value $120m). The combined entity is expected to be worth $680m. Corvus will pay Delta's shareholders a premium of $25m over Delta's stand-alone value, and acquisition costs will be $8m. What is the net gain to Corvus's shareholders?
The net gain to Corvus's shareholders is $27m. Synergy is $680m less $620m of combined stand-alone values, giving $60m. Deducting the $25m premium paid to Delta's shareholders and $8m of acquisition costs leaves $27m for Corvus's own shareholders.
- A$27mCorrect
- B$35m
- C$60m
- D$52m
Explanation
Synergy = 680 - (500 + 120) = $60m. Corvus's gain = 60 - premium 25 - costs 8 = $27m. Ignoring costs gives $35m; ignoring both gives $60m.
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