Pincer Plc has $6$ million shares in issue and Queen Plc $12$ million. On day $1$ the market

value per share for Pincer is $5\mathrm{.}00,$ and that of Queen is $7\mathrm{.}50.$ On day $2,$ the

management of Queen Plc decides at a private meeting, to make a cash takeover

bid for Pincer at a price of $6\mathrm{.}50$ per share. The takeover will produce large operating

savings with a value of $15$ million. On day $7,$ the management of Queen Plc publicly

announces an unconditional offer to purchase all the shares of Pincer at a price of $6\mathrm{.}50$

per share with settlement on day $15.$ Details of the large savings are not announced

and are not public knowledge. On day $15,$ Queen PLC announces details of the savings,

which will be derived from the takeover.

Required:

Ignoring tax and the time$-$value of money between days $1$ and $15,$ and assuming the

details given are the only factors having an impact on the share prices of Pincer and

Queen, determine the day $2,$ day $7,$ and day $15$ share prices of Pincer and Queen if the

market is:

$1.$ Semi$-$Strong Efficient.

$2.$ Strong Form Efficient.

In each of the following circumstances:

$($i$)$The purchase consideration is cash as specified above, and

$($ii$)$The purchase consideration, decided upon on day $2,$ and publicly announced

on day $7,$ is one newly issued share of Queen Plc for each share of Pincer Plc$.$

$(15$ marks$)$

b$.$ Academics have argued that market efficiency can be defined using three differing

strengths: weak form, semi$-$strong form, and strong form. Critically evaluate the

three differing strengths of market efficiency.