Question 7 Sigra Co is a listed company producing confectionary products which it sells around the world. It wants to acquire Dentro Co, an unlisted company producing high quality, luxury chocolates. Sigra Co proposes to pay for the acquisition using one of the following three methods: Method 1 A cash offer of GH5-00 per Dentro Co share; or Method 2 An offer of three of its shares for two of Dentro Co's shares; or Method 3 An offer of a 2% coupon bond in exchange for 16 Dentro Co's shares. The bond will be redeemed in three years at its par value of GH100. Extracts from the latest financial statements of both companies are as follows: Sigra Co Dentro Co GH000 Sales revenue GH000 44.210 Profit before tax 4.680 6,190 780 Taxation (1.240) (155) 6 Profit after tax Dividends Retained earnings for the year 4.950 (2.700) 2.250 625 (275) 350 Non-current assets Current assets Non-current liabilities Current liabilities Share capital (40p per share) Reserves 22,450 3,450 9,700 3,600 4.400 8.200 3,350 247 873 436 500 1.788 Sigra Co's current share price is GH3.60 per share and it has estimated that Dentro Co's price to earnings ratio is 12.5% higher than Sigra Co's current price to earnings ratio. Sigra Co's non- current liabilities include a 6% bond redeemable in three years at par which is currently trading at GH104 per GH100 par value. Sigra Co estimates that it could achieve synergy savings of 30% of Dentro Co's estimated equity value by eliminating duplicated administrative functions, selling excess non-current assets and through reducing the workforce numbers, if the acquisition were successful. Required: Estimate the percentage gain on a Dentro Co share under each of the above three payment methods. Comment on the answers obtained