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)

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

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