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

Gamma plc has 100m shares at $5.00 and bids for Delta Ltd, whose market value is $200m. Gamma expects annual synergies worth a present value of $60m and offers $230m, financed by issuing new Gamma shares at $5.00. Post-deal, Gamma's value is assumed to be its existing $500m plus Delta's $200m plus synergies $60m. What is Gamma's expected share price after the deal, ignoring other costs?

Combined value is $760m (500 + 200 + 60). Gamma issues 46m new shares ($230m at $5), giving 146m shares in total. The expected price is 760 divided by 146, about $5.21, so $5.20 is the closest option.

  1. A$5.28Correct
  2. B$5.00
  3. C$5.43
  4. D$5.20

Explanation

Combined value = 500 + 200 + 60 = $760m. New shares = 230/5 = 46m, so total shares = 146m. Price = 760/146 = $5.205... recalculating: 760/146 = 5.205, so the correct figure is $5.21, not matching; check: option $5.20 is the closest rounding, hence correct.

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