Dawn Raider plc has just offered one of its shares for two shares in Sleepy Giant plc, a business in the same industry as itself. Extracts from the financial statements of each business for the year ended 31 May Year 8 appear below:

Dawn Raider Sleepy Giant

£m £m Income statements Sales revenue 150 360 Profits for the year 18 16 Statement of financial position (balance sheet) data Non-current assets 150 304 Net current assets (Note 1) 48 182 198 486 Loans (80) (40)

118 446 Share capital (Note 2) 50 100 Reserves 68 346 118 446 Notes Dawn Raider Sleepy Giant 1 Includes cash/(overdrafts): (£60m) £90m 2 Shares 25p 50p 3 Dividends paid and proposed 4 14 Stock market data for each business is as follows:
31 May 31 May 31 May Year 6 Year 7 Year 8 Dawn Raider plc Share price (pence) 120.0 144.0 198.0 Earnings per share (pence) 5.3 6.9 9.0 Dividends per share (pence) 2.0 2.0 2.0 Sleepy Giant plc Share price (pence) 45.0 43.0 72.0 Earnings per share (pence) 8.4 7.4 8.0 Dividends per share (pence) 8.0 7.0 7.0 If the takeover succeeds, Dawn Raider plans to combine Sleepy Giant’s marketing and distribution channels with its own, with a post-tax saving of £1 million a year. In addition it expects to be able to increase Sleepy Giant’s profits after tax by at least £5 million a year by better management. Dawn Raider’s own profits after tax are expected to be £23 million (excluding the £1 million saving already mentioned), in the year ended 31 May Year 9.
One of the shareholders of Sleepy Giant has written to its chairman arguing that the bid should not be accepted. The following is an extract from his letter: ‘The bid considerably undervalues Sleepy Giant since it is below Sleepy Giant’s net assets per share. Furthermore, if Dawn Raider continues its existing policy of paying only 2p a share as a dividend, Sleepy Giant’s shareholders will be considerably worse off’.
Required:

(a) Calculate:
(i) The total value of the bid and the bid premium.
(ii) Sleepy Giant’s net assets per share at 31 May Year 8.
(iii) The dividends the holder of 100 shares in Sleepy Giant would receive in the year before and the year after the takeover.
(iv) The earnings per share for Dawn Raider in the year after the takeover.
(v) The share price of Dawn Raider after the takeover assuming that it maintains its existing price/earnings ratio.

(b) Comment on:
(i) The points that the shareholder in Sleepy Giant raises in his letter.
(ii) The amount of the bid consideration.