Question 2

Pinky Retailers is a dairy company which is in the process of negotiating the acquisition of Brain Wholesalers. The management estimates that the acquisition will result in economies of scale and the additional benefits will amount to R36 000 000. Pinky Retailers is prepared to make a cash payment of R178 000 000 for Brain Wholesalers.

The following information is available for the two companies:

	Pinky Retailers	Brain Wholesalers
Earnings per share	R64.00	R56.00
Number of shares	3 200 000 shares	2 750 000 shares
Market value per share	R75.00	R60.00

Determine the market price per share after the proposed take-over. (8 marks)

Calculate the net present value of the proposed take-over. (3 marks)

Calculate the take-over premium. (3 marks)

Determine the exchange ratio based on earnings per share. (2 marks) Assume that the take-over (acquisition) was based on earnings per share.

Calculate the benefits, if any, for both parties based on the post take- over earnings per share (9 marks) Assume that the take-over (acquisition) was based on earnings per share.