QUESTION 3 [25 MARKS]

The directors of Tab Limited have appointed you as a merger and acquisition specialist. They are considering the take-over of Fanta Limited and you are to advise them whether or not to proceed with the project. The following market information is supplied to you: Earnings Market Number Per price per of share share shares Tab 415 c R 5.00 4 million Fanta 352 c R 4.00 2 million Additional information: Cash payment of R6 million to Fanta Ltd Synergy of R7 million will benefit the takeover

Required:

3.1 Calculate the value of the proposed take-over (3 Marks

3.2 Calculate the net present value of the take-over (2 Marks)

3.3 Calculate the take-over premium (2 Marks)

3.4 Calculate the post-take-over market price of the share (3 Marks)

3.5 Calculate the post-take-over increase/decrease price of the share (2 Marks) Assume the take-over was based on earnings per share

3.6 Calculate the exchange ratio based on earnings per share (3 Marks)

3.7 Calculate the total number of shares in the take-over (2 Marks)

3.8 Calculate the post-take-over earnings per share (4 Marks)

3.9 Calculate the benefits, if any, to the companies. (4 Marks)