QUESTION TWO

The directors of Udinese Limited, a hotel and leisure group operating along the coastal seaboard South Africa have appointed you as a merger and acquisition specialist. They are considering acquisition of Ulutese Limited. You are to advise them whether or not to proceed with the project.

The following information is available:

$\backslash$table$[[$The following information,Ulinese Limited,R$8\mathrm{.}00],[,$R$10\mathrm{.}00,$R$2\mathrm{.}40],[$Market price per share,R$3\mathrm{.}00,1$ million$],[$Earnings per share,$2$ million,$]]$

Cash payment to Ulutese Limited $=R12$ million.

Synergy benefits of $R10$ million will accrue through the acquisition.

Required:

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

$1$ Calculate the combined value of the proposed acquisition.

$2$ Determine the net present value of the proposal.

$3$ Calculate the acquisition premium.

$4$ Calculate the post$-$acquisition market price of the share.

$5$ Determine the post$-$acquisition increase$/$decrease price of the share.

sume the acquisition is based on earnings per share and:

Determine the exchange ratio based on earnings per share.

Compute the total number of shares in the proposed acquisition.

Calculate the post$-$acquisition earnings per share.

Calculate the benefits, if any, to the two parties.