Company X has 2000000 issued shares while company Y has 6000000 . On day 1, the market value per share is $2 for X and $3 for Y On day 2, the management of company Y decide, at a private meeting, to make a cash take over bid for X at a price of $3 per share. The take over will produce operating savings with a present value of $3.2 million On day 4, Company Y publicly announces an unconditional offer to purchase all shares of company X at a price of $3 per share with settlement on day 15 . details of the large savings are not announced and are not public knowledge. On day 10 company Y announces the details of the savings that will be derived from the takeover. Required:- Ignoring taxes and the time value of money between day 1 and 15 , and assuming the details given are the only factors having an impact on the share price of X and Y, determine the day 2, day 4 and day 10 share price of X and Y if the market is (i) semi- strong form efficient and (ii) strong form efficient, in each of the following separate circumstances a) the purchase price is cash as specified above b) the purchase consideration, decided upon on day 2 and publicly announced on day 4 , is one newly issued share of Y for each share of X [25 marks] Company X has 2000000 issued shares while company Y has 6000000 . On day 1, the market value per share is $2 for X and $3 for Y On day 2, the management of company Y decide, at a private meeting, to make a cash take over bid for X at a price of $3 per share. The take over will produce operating savings with a present value of $3.2 million On day 4, Company Y publicly announces an unconditional offer to purchase all shares of company X at a price of $3 per share with settlement on day 15 . details of the large savings are not announced and are not public knowledge. On day 10 company Y announces the details of the savings that will be derived from the takeover. Required:- Ignoring taxes and the time value of money between day 1 and 15 , and assuming the details given are the only factors having an impact on the share price of X and Y, determine the day 2, day 4 and day 10 share price of X and Y if the market is (i) semi- strong form efficient and (ii) strong form efficient, in each of the following separate circumstances a) the purchase price is cash as specified above b) the purchase consideration, decided upon on day 2 and publicly announced on day 4 , is one newly issued share of Y for each share of X [25 marks]
