Thruster plc is a dynamic, expanding business. Relaxation plc is a solid but unambitious one operating in the same industry. Thruster plc has recently launched a takeover bid for Relaxation plc. The offer is that Thruster plc will give one of its shares to shareholders in Relaxation plc for every three of their shares.

After-tax cost savings are estimated to be £8m p.a. as a result of administrative efficiencies, compared with the total costs historically incurred by the two businesses.

Summarised financial statements for the two businesses for the year just ended are as follows:

Observers believe that, following the takeover, the P/E ratio of Thruster plc will be 16.
Assuming that the market value of their shareholdings is the only factor of concern, would the shareholders of each business welcome a successful takeover?

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Profit and loss account Thruster plc Relaxation plc m m Turnover 650 200 Profit before tax 72 17 Taxation 24 6 Profit after tax 48 11 Dividends Retained profit for the year 7 5 41 6