The directors of Pochettino plc have made an 850p-per-share cash bid for Kain plc, a company that is in a similar line of business. The summarised accounts of these two companies are as follows:

Pochettino £m Kain £m Sales (all credit) 216 110 Operating costs (111) (69)

Operating profit 105 41 Interest (8) (10)

Earnings before tax 97 31 Tax (25) (10)

Earnings for shareholders 72 21 Fixed assets 76 50 Current assets Stock 20 25 Debtors 40 24 Cash 8 1 68 50 Current liabilities Creditors (28) (12)

Bank overdraft – (8)

(28) (20)

Net current assets 40 30 Total assets less current liabilities 116 80 Long-term liabilities (60) (50)

Net assets 56 30 Included in the operating costs for each company are the purchases made during this year – £100 million for Gross and £70 million for Klinsmann..

The number and market value of each company’s shares are:
Pochettino Kain No. of shares issued 100m 20m Share price 600p 700p Required Analyse this bid to include:

(a) Possible ways in which Pochettino may hope to recoup the bid premium when operating Kain.

(b) The final and strategic effects on Pochettino if the bid is accepted by Kain’s shareholders.