DULPIE is considering a takeover bid for FAST. DULPIE`s board of directors has issued the following statement: "Our superior P/E ratio and synergistic effects of the acquisition will lead to a post-acquisition increase in earnings per share and in the combined market value of the companies".

Summarized financial data for the

companies ($million)

DULPIEFAST

Sales48,0035,30

Profit before tax

6,304,10

Tax-1,89-1,23

Profit after

tax4,412,87

Dividends2,001,10

Non current Assets

(net)28,4026,50

Current

Assets

22,6417,30

Total

Assets51,0443,80

Equity and

liabilities

Ordinary Shares (10 cents par

value)4,003,00

Reserves

21,1219,20

Medium and long term

borrowing8,6011,40

Current

liabilities

17,3210,20

51,0443,80

Notes:

i.After

tax savings in cash operating costs of $750,000 per year indefinitely are

expected as a result of the acquisition

ii.Initial

redundancy costs will be $1 million before tax

iii.DULPIE`s

cost of capital is 12%

iv.Current

share price are: DULPIE 290 cents, FAST 180 Cents

v.The

proposed terms of the takeover are payment of 2 DULPIE shares for every 3 FAST

shares

Required:

a.Calculate

the current P/E ratios of DULPIE and FAST

b.Estimate

the expected post acquisition earnings per share and comment upon the

importance of increasing the earnings per share

c.Estimate

the effect on the combined market value as a result of the takeover using:

i.P/E

based valuation

ii.Cash

flow based valuation

State Cleary any assumption that

you make

d.Discuss

the limitations of your estimates in (c) above

e.Evaluate

the strategic implications of making a hostile bid for a company compared with

an aggressive investment programme of organic growth

f.The

regulation of takeovers varies from country to country. Outline the typical

factors that such regulation includes.