Alpha plc (Alpha) is considering the purchase of Omega plc (Omega). There are two potential methods for this acquisition: (a) a cash repurchase of all Omegas issued shares, or (b) a share-for-share exchange in which Omega shareholders would receive new shares in the enlarged Alpha group. There are 1,000,000 issued shares for Alpha and 500,000 shares for Omega.

The latest dividend distributions for Alpha were 250,000 and for Omega 50,000. The current stock price for Alpha is 24.2 per share and for Omega is 5.5 per share. The dividends for Omega have a dividend growth rate of 5 per cent per year. Alpha believes that economies of scale will arise from the acquisition which will lead after the acquisition to a higher dividend growth rate of 6 per cent per year.

Required:

1. It is generally accepted that markets are semi-strong form efficient and fully compound all publicly available information. This means that Alpha would not be able to takeover Omega because the market value of Omega would be correct and reflect the true value of the company. Critically evaluate the validity of this proposition.
2. Describe the different forms of efficiency. Shortly present an example of potential evidence against each form of efficiency (This could be either a description of the empirical method that someone can use to find evidence against the efficient market theory, or it could be an example based on the findings of the existing research.)