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ACCA Strategic Professional · Advanced Financial Management · Acquisitions and mergers versus other growth strategies

Evora plc (market cap 300m, 100m shares at 3.00 each) plans to acquire Fynn Ltd, valued standalone at 80m. Synergies have a present value of 30m. Evora will pay 95m cash. What is the gain to Evora's shareholders, and what is the new Evora share price assuming the market fully reflects the deal and the cash is raised with no other effects on value?

Evora's shareholders gain 15m and the share price rises to 3.15. Combined value is 300m plus Fynn's 80m plus synergies 30m, less 95m cash paid, giving 315m over 100m shares. The gain equals synergies of 30m less the 15m premium paid.

  1. AGain 15m; share price 3.15Correct
  2. BGain 15m; share price 3.30
  3. CGain 30m; share price 3.30
  4. DGain 15m; share price 3.45

Explanation

Value created = 80 + 30 = 110m. Cost 95m, so the gain to Evora's shareholders = 15m (the premium of 15m over standalone value is paid to Fynn's holders, but total synergies 30m less premium 15m = 15m). Evora's value = 300 + 110 - 95 = 315m. Dividing by 100m shares gives 3.15. Option 3 ignores the premium paid.

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