ACCA Strategic Professional · Advanced Financial Management · Acquisitions and mergers versus other growth strategies
Orion plc (market value $400m) will acquire Vega plc (market value $100m). Orion estimates combined value after the deal at $540m, with no change in other factors. Orion will pay Vega's shareholders $125m in cash. What is the net present value of the acquisition to Orion's shareholders?
The net present value to Orion's shareholders is $15m. Synergy is $540m less $500m combined standalone value, giving $40m, and Orion pays a $25m premium over Vega's $100m value, so the net gain retained is $40m minus $25m.
- A$15mCorrect
- B$40m
- C$25m
- D$65m
Explanation
Synergy = 540 - (400 + 100) = $40m. Premium paid = 125 - 100 = $25m. Gain to Orion = 40 - 25 = $15m. Distractor $40m ignores the premium; $25m is the premium itself; $65m adds the premium to synergy.
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