Mike Limited, a software development company is contemplating the acquisition of Ross Limited by means of a shareissue. The combination of the two firms' operations will result in economies of scale and the additional value generatedis estimated to be R24 million. It was agreed that the purchase consideration for the acquisition should be based on anexchange of 1.4 shares of Ross Limited for each share of Mike Limited.The key acquisition data provided for this acquisition is as follows:Mike Limited possesses 18.8 million shares with a market price of R32 per share and earnings after tax of R26 million,whereas Ross Limited has 13.2 million shares with a market price of R28 per share and earnings after tax of R19 million.Required:1.1 Calculate the combined value of the proposed acquisition. (3 marks)1.2 Calculate the total number of shares in the proposed acquisition. (2 marks)1.3 Determine the proposed post-acquisition market price per share. (2 decimal places) (2 marks)1.4 Will the shareholders of Mike Limited be happy with this price? Why? (2 marks)1.5 How much will the shareholders of Ross Limited gain or lose on a per share basis. (2 marks)1.6 Determine the purchase price of Ross Limited that is implied by the 1.4 exchange ratio. (3 marks)1.7 Calculate the net present value of the proposed acquisition. (4 marks)1.8 Calculate the proposed acquisition premium. (3 marks)1.9 Compute the earnings per share for Mike Limited before and after the proposed acquisition. Assume that theearnings after tax after the proposed acquisition is R35 million.
Mike Limited, a software development company is contemplating the acquisition of Ross Limited 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 R24 million. It was agreed that the purchase consideration for the acquisition should be based on an
exchange of 1.4 shares of Ross Limited for each share of Mike Limited.
The key acquisition data provided for this acquisition is as follows:
Mike Limited possesses 18.8 million shares with a market price of R32 per share and earnings after tax of R26 million,
whereas Ross Limited has 13.2 million shares with a market price of R28 per share and earnings after tax of R19 million.
Required:
1.1 Calculate the combined value of the proposed acquisition. (3 marks)
1.2 Calculate the total number of shares in the proposed acquisition. (2 marks)
1.3 Determine the proposed post-acquisition market price per share. (2 decimal places) (2 marks)
1.4 Will the shareholders of Mike Limited be happy with this price? Why? (2 marks)
1.5 How much will the shareholders of Ross Limited gain or lose on a per share basis. (2 marks)
1.6 Determine the purchase price of Ross Limited that is implied by the 1.4 exchange ratio. (3 marks)
1.7 Calculate the
1.8 Calculate the proposed acquisition premium. (3 marks)
1.9 Compute the earnings per share for Mike Limited before and after the proposed acquisition. Assume that the
earnings after tax after the proposed acquisition is R35 million.
Step by step
Solved in 2 steps
