ABC PLC has been evaluating XYZ plc as a takeover candidate. It has been estimated that cost savings of TZS4000 million per annum can be achieved, estimated to be worth TZS 48000 million on a present value basis by merging the companies. ABC's management are concerned that XYZ's share price has recently increased from TZS 200 to TZS 250 as a result of speculation that a bid would occur. With ABC shares currently trading at TZS500, ABC's finance director has proposed that one of its shares should be offered for every two of those of XYZ. While the market will not be surprised by a bid from some source there has no speculation that ABC is interested in XYZ. ABC has 600 million shares outstanding and XYZ 500 million.

Required:

1. Identify the net cost of the takeover on the proposed terms

2. Given the expected cost savings would this be a profitable takeover for ABC on the terms specified

3.Estimate the value of ABC's shares immediately following the takeover, assuming the market also anticipates cost savings of TZS48000 million