The directors of Fama Industries plc are currently considering the acquisition of Beaver plc as part of its expansion programme. Fama Industries plc has interests in machine tools and light engineering while Beaver plc is involved in magazine publishing. The following financial data concerning each company are available:

Income Statements for the year ended 30 November 20XX Fama Industries £m Beaver £m Sales turnover 465 289 Profit before interest and taxation 114 43 Interest payable (5) (9)

Profit before taxation 109 34 Taxation (26) 9 Net profit after taxation 83 25 Dividends (8) (12)

Retained profit for the year 75 13 Statements of financial position as at 30 November 20XX Fama Industries £m Beaver £m Fixed assets 105 84 Net current assets 86 38 191 122 Less creditors due beyond one year (38) (58)

153 64 Capital and reserves Ordinary shares 50 30 Retained profit 103 34 153 64 Price:earnings ratio prior to bid 16 12 The ordinary share capital of Fama Industries plc consists of 50p shares and the share capital of Beaver plc consists of £1 shares. The directors of Fama Industries plc have made an offer of four shares for every five shares held in Beaver plc.

The directors of Fama Industries plc believe that combining the two businesses will lead to after-tax savings in overheads of £4 million per year.

Required

(a) Calculate:

(i) the total value of the proposed bid

(ii) the earnings per share for Fama Industries plc following the successful takeover of Beaver plc

(iii) the share price of Fama Industries plc following the takeover, assuming that the price:earnings ratio is maintained and the savings are achieved.

(b) Comment on the value of the bid from the viewpoint of shareholders of both Fama Industries plc and Beaver plc.

(c) Identify, and briefly discuss, two reasons why the managers of a company may wish to take over another company. The reasons identified should not be related to the objective of maximising shareholder wealth.