QUESTION ONE

The directors of Nico Limited have appointed you as a merger and acquisition specialist. They are considering the acquisition of Maya Limited. You are to advise them whether or not to proceed with the project. The following information is available:

Nico Limited Maya Limited

Market price per share R400.00 R280.00

Earnings per share R240.00 R120.00

No. of shares issued 2 000 000 800 000

- Cash payment to Maya Limited = R78 million.

- Synergy benefits of R30 million will accrue through the acquisition.

- Maya Limited have just had their assets re-valued and the valuation has appreciated quite significantly.

1.1 Discuss the possible tax gains from a merger and acquisition (4 marks)

Calculate the net present value of the proposal (2 marks)

Assume the acquisition is based on market values with a cash payment

1.2 Calculate the acquisition premium (2 marks)

Assume the acquisition is based on market values with a cash payment

1.3 Calculate the post-acquisition increase/decrease price of the share (7 marks)

Assume the acquisition is based on market values with a cash payment:

1.4 Calculate the exchange ratio based on earnings per share (3 marks)

Assume the acquisition is based on earnings per share

1.5 Calculate the post-acquisition earnings per share (7 marks)

Assume the acquisition is based on earnings per share