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

Gamma Co (10 million shares at $6.00) acquires Delta Co, worth $15m standalone, by paying $18m in cash raised from new borrowing. Synergies are $6m. Ignoring tax and financing costs, what is the increase in wealth for Gamma's existing shareholders?

Gamma's shareholders gain $3m: Delta's standalone value of $15m plus synergies of $6m gives $21m of value, less the $18m cash paid. The premium of $3m over standalone value transfers to Delta's shareholders, leaving the rest of the synergy with Gamma.

  1. A$3mCorrect
  2. B$6m
  3. C$9m
  4. D$(3)m

Explanation

Gain to Gamma shareholders = standalone value of Delta + synergies - price paid = 15 + 6 - 18 = $3m. Option B ignores the premium paid ($3m). Option C is the synergy plus premium confusion (6+3). Option D wrongly deducts synergy twice.

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