Kunla Ltd and Cunta Ltd intend to merge. The following were observed just before the merger announcement. Kunla Ltd Cunta Ltd Market price per share GH¢ 400 GH¢200 Number of shares 2,000,000 1,000,000 Market value of firm GH¢ 800,000,000 GH¢ 200,000,000 The proposed merger will create GH¢50,000,000 in synergies. Kunla Ltd intends to pay GH¢ 130,000,000 cash for Cunta Ltd. What is the cost of the merger to Kunla Ltd? Compute the NPV of the merger. The managers
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Kunla Ltd and Cunta Ltd intend to merge. The following were observed just before the merger announcement.
|
Kunla Ltd |
Cunta Ltd |
Market price per share |
GH¢ 400 |
GH¢200 |
Number of shares |
2,000,000 |
1,000,000 |
Market value of firm |
GH¢ 800,000,000 |
GH¢ 200,000,000 |
The proposed merger will create GH¢50,000,000 in synergies. Kunla Ltd intends to pay GH¢ 130,000,000 cash for Cunta Ltd.
- What is the cost of the merger to Kunla Ltd?
- Compute the
NPV of the merger. - The managers of these firms have proposed to merge to diversify their activities and to reduce risk. Should you pay a premium for the merged firm?
- What convincing reasons can these managers give for the proposed merger?
- What roles do investment banks play in facilitating M&A deals?
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- Maxi ltd is considering acquiring mini ltd. Selected financial data for the two companies are as follows: Max ltd Mini Ltd Annual sales sh. Million 750 90 Net income sh. Millions 60 7.5 Ordinary shares outstanding (millions) 15 3 Earnings per share (EPS) sh 4 2.5 Market price per share (sh) 44 20 Required: a) Calculate the maximum exchange ratios Maxi ltd should agree if it expects no dilution in the Earnings Per Share. b) How much premium would the shareholders of Mini LtdFirm E is going to acquire Firm F. The acquisition will be done via a share exchange, whereby Firm E will exchange 2.65 of its shares for every one of Firm F's shares. Synergy is $1,250,000 in total. Firm E has 350,000 shares outstanding trading at $35 each. Firm F has 45,000 shares outstanding trading at $84 each. What would the exchange ratio have to be for the NPV of the deal to be zero? Question 1 options: A) 3.13 shares of E for every 1 of F B) 0.41 shares of E for every 1 of F C) 3.15 shares of E for every 1 of F D) 2.40 shares of E for every 1 of F E) 3.19 shares of E for every 1 of FEbony Corporation has negotiated the acquisition of Ivory Company in an exchange of shares. Under the terms of the merger, the exchange ratio will be 2.30. Other important pre-merger information for both companies is given below: Expected sales Shares outstanding Expected EPS without merger P/E ratio Ebony Corporation P65,000,000 2,500,000 Ivory Сompany P10,000,000 250,000 P2.00 P1.56 12 11. Assuming no synergy, the estimated post-merger earnings per share for Ebony Corporation is nearest P1.76. a. b. P1.78. с. PI.56. d. P1.43. 12. Based on the information given above, the percentage acquisition premium is nearest 22.6%. b. a. 19.6%. 79.4%. d. 52.0%. c.
- A limited is considering making a tender offer for B Ltd. The merger would result in economies of scale (Benefit of synergy) of Rs.20 lakh. The relevant financial information for B Ltd. is as follows: Number of shares outstanding 1,80,000 Earnings per share Rs.12 Market price per share Rs.76 A Limited intends to make a two-tier tender offer wherein it will offer Rs.82 for the first 1, 00,000 shares and Rs.75 for the remaining shares. a. If the tender is successful, how much should A Ltd pay to B Ltd.? b. If the Economies of merger is Rs.20, 00,000, How much of this goes to the Shareholders of A Ltd & B Ltd respectively? How much are the shareholders of A Ltd. And B Ltd. benefitting from the economies of merger?A limited is considering making a tender offer for B Ltd. The merger would result in economies of scale (Benefit of synergy) of Rs.20 lakh. The relevant financial information for B Ltd. is as follows: Number of shares outstanding 1,80,000 Earnings per share Rs.12 Market price per share Rs.76 A Limited intends to make a two-tier tender offer wherein it will offer Rs.82 for the first 1, 00,000 shares and Rs.75 for the remaining shares. a. If the shareholders of B Ltd act together as a Group, will they benefit in terms of price being offered? If so & if not, give reasons.Prior to a potential merger Ross Co has 4500 shares outstanding at a market price per share of $31. Bulbs Inc has 2,800 shares outstanding at $18 per share. Assume Ross Co has estimated the valueof the synergistic benefits from acquiring Bulb Inc to be $3,500. Nowther firm has outstanding debt. The acquiring firm offered a price of $19.75 per share to the target. If the deal goes through, what is the merger premium? A) 4900 B) 3500 C) 2800 D) 6125 E) 0
- A merger between Minnie Corporation and Mickey Corporation is under consideration. The financial information for these firms is as follows: Minnie Corporation Mickey Corporation Total earnings $1,682,000 $2,581,000 Number of shares of stock outstanding 290,000 890,000 EPS $5.80 $2.90 P/E ratio 10X 20X Market price per share $58 $58 a. On a share-for-share exchange basis, what will the postmerger EPS be? (Round the final answer to 2 decimal places.) Postmerger earnings per share $ b. If Mickey Corporation pays a 25 percent premium over the market value of Minnie Corporation, how many shares will be issued? (Do not round intermediate calculations.) Shares issued shares c. With the 25 percent premium, what will the postmerger EPS be? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Postmerger earnings per share $ABC will be merging with Target Corporation. Equity values were gathered as follows: ABC, separate equity value = P13,000,000; Target, separate equity value = P2,500,000. The merged entity, ACBT Inc., will have annual net earnings of P3,060,000 and a required return on equity of 18%. *How much is the value of synergy of the merger?Prior to a potential merger Veggie Co has 4400 shares outstanding at a market price per share of $34.50. Fruits Inc 2300 shares outstanding at $30.50 per share. Assume Veggie Co has estimated the value of the synergistic benefits from acquiring Fruit to be $5600. Neither firm has outstanding debt. The acquiring firm has offered a price of $32.75 per share to the target. If the deal goes through, what is the NPV of the acquisition? A) 425 B) 225 C) 1050 D) 900 E) 575
- Consider the following data in relation to a proposed acquisition, where Firm B will take over Firm A in a horizontal takeover. Pre-merger Value A $550m Pre-merger Value B $420m Post-merger Value A + B $1,150m Cash Offer $580m Share Offer 52% of Shares in A + B Estimate the gains available from the merger. Estimate the value of the merger to firm A’s shareholders under both the cash and share offer. Estimate the value of the merger to firm B’s shareholders under both the cash and share offer. Which offer will predominate, cash or shares, if the shareholders of A are given the choice?Consider the following information about Firm A and Firm T: Item Firm A (Acquiring firm) Firm T (Target firm) Price per share $20 $15 Outstanding shares 50 25 Total market value $1000.00 $375 Total cost of the acquisition is $500.00 and the merger is estimated to create a synergistic gain of $700.00. What is the NPV of the acquisition to firm A? Select one: a. $1075.00 b. $575.00 c. $425.00 d. $555.00The directors of Nico Limited have appointed you as a merger and acquisition specialist. They are considering theacquisition of Maya Limited. You are to advise them whether or not to proceed with the project.The following information is available: Nico Limited Maya LimitedMarket price per share R400.00 R280.00Earnings per share R240.00 R120.00No. of shares issued 2 000 000 800 000 - Cash payment to Maya Limited = R78 million.- Synergy benefits of R30 million will accrue through the acquisition.- Maya Limited have just had their assets re-valued and the valuation has appreciated quite significantly. Calculate the post-acquisition increase/decrease price of the share Assume the acquisition is based on market values with a cash payment Calculate the post-acquisition earnings per share Assume the acquisition is based on earnings per share