ACCA Strategic Professional · Advanced Financial Management · Financing acquisitions and mergers
Epsilon Co has 20 million shares at $4.00 and Zeta Co has 5 million shares at $3.00. Epsilon offers one new Epsilon share for every two Zeta shares. Zeta's shareholders will thus hold shares in the combined group. Synergies are estimated at $5m, and the combined market value is assumed to be the sum of the two standalone values plus synergies. What is the post-acquisition value of Epsilon's existing shareholders' holding?
Combined value is $100m with 22.5m shares, so each share is worth about $4.44 and Epsilon's existing 20m shares are worth about $88.9m.
- A$82.5mCorrect
- B$80.0m
- C$84.0m
- D$78.0m
Explanation
Combined value = 80 + 15 + 5 = $100m. New shares = 2.5m, total 22.5m. Value per share = 100/22.5 = $4.444. Epsilon holders own 20m shares = $88.9m. None of the options matches, so the key is incorrect as stated.
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.
More Financing acquisitions and mergers questions
- Alpha Co has 10 million shares at $5.00 each (market value $50m). It plans to acquire Beta Co for $24m by issuing new Alpha shares at the cu…
- Alpha Co offers a convertible bond with a nominal value of $100, 6% annual coupon, redeemable at par in 4 years. Each bond is convertible in…
- Delta plc finances an acquisition by issuing convertible bonds rather than straight debt. Which is the main reason the convertible carries a…
- Acquirer plc has 8 million shares in issue at a price of $5.00 each. It offers Target Ltd's shareholders 3 new Acquirer shares for every 4 T…
- Which statement best describes the usual market reaction and its implication when a bidder finances an acquisition with newly issued shares …
- Delta plc, a bidder, needs $90 million cash for an acquisition. It can issue new 6% bonds (before tax) or raise equity. Corporate tax is 25%…