4.1 Calculate the combined value of the proposed acquisition. 4.2 Calculate the total number of shares in the proposed acquisition. 4.3 Determine the proposed post-acquisition market price per share. (2 decimal places) ) 4.4 Will the shareholders of Watford Refiners be happy with this price? Why?
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Watford Refiners is contemplating the acquisition of Surrey Ltd by means of a share issue. The combination of the two firms' operations will result in economies of scale and the additional value generated is estimated to be R20 million. The financial directors of the two companies have agreed to an equal split of this value between each firm's shareholders. It was also agreed that the purchase consideration for the Surrey Ltd acquisition should be based on an exchange of 1.25 shares of Watford Refiners for each share of Surrey Ltd.
Key acquisition data is detailed below:
Company No. of shares Price per share Earnings after Tax
Watford Refiners 8 million R12 R10 million
Surrey Ltd 5 million R9 R7 million
Required:
4.1 Calculate the combined value of the proposed acquisition.
4.2 Calculate the total number of shares in the proposed acquisition.
4.3 Determine the proposed post-acquisition market price per share. (2 decimal places) )
4.4 Will the shareholders of Watford Refiners be happy with this price? Why?
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- On 1 July 2020, Lada Ltd (LL) acquired a 20 per cent interest in Hupmobile Ltd (HL) for a cash consideration of $40,000. Despite its small shareholding in HL, LL is considered to have significant influence over HL, since LL is able to appoint a director to HL’s Board of Directors, and HL is a major customer of LL. LL also provides management personnel to HL, and the two companies share technical information. On the date of the acquisition, the assets of HL were reported at fair value. The share capital and reserves of HL at the date of acquisition were: Share capital 50,000 Retained earnings 140,000 Total shareholders’ equity $190,000 Additional information For the year ending 30 June 2021, HL recorded an after-tax profit of $100,000, from which it paid a dividend of $50,000. For the year ending 30 June 2022, HL recorded an after-tax profit of $80,000, from which it paid a dividend of $60,000. On 30 June 2022, HL revalued its Land upwards by $10,000. Before this revaluation, the Land…Warehouse Stationary is planning on merging with Whitcoulls. Warehouse's will pay Whitcoulls's shareholders the current value of their stock in shares of Warehouse's Equipment. Warehouse's currently has 4,600 shares of stock outstanding at a market price of $31 a share. Whitcoulls's has 1,600 shares outstanding at a price of $38 a share. What is the value per share of the merged firm assuming there is no synergy?Aussie Ltd is considering the acquisition of Kiwi Ltd. The values of the two companies as separate entities are $20 million and $10 million, respectively. Each firm has 2 million shares outstanding. Aussie estimates that by combining the two companies, it will reduce the selling and administrative costs by $150,000 p.a. in perpetuity with no change in risk. Assume the cost of capital for the new firm is 10% p.a. What is the total gain, in present value terms, from the merger? a. $500,000 b. $150,000 c. $1,500,000 d. $1,000,000 e. None of the above
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