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

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

Details of the number and market value of each company’s shares are as follows

Required Analyse this bid to include:

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

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

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Gross m Sales (all credit) Operating costs Operating profit Interest Earnings before tax Tax Earnings for shareholders Fixed assets 216 (111) 105 Current assets Stock 20 25 Debtors 40 24 Cash 8 68 50 Current liabilities Creditors Bank overdraft 27789 (20) Net current assets 40 Total assets less current liabilities 116 Long-term liabilities (60) Net assets 56 116 Klinsmann m 110 (69) 41 (10) (10) 80