The directors of Harvey Limited have appointed you as a merger and acquisition specialist. They are considering the acquisition of Spector Limited. You are to advise them whether or not to proceed with the project.

The following information is available:

Harvey Limited Spector Limited

Market price per share 2000 cents 1600 cents Earnings per share 600cents 480cents No. of shares issued 4 000 000 1 000 000

Cash payment to Spector Limited = R24 million.

Synergy benefits of R20 million will accrue through the acquisition.

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

Required:

2.1 Assume the acquisition is based on earnings per share: 2.1.1 Calculate the exchange ratio based on earnings per share. (3 marks) 2.1.2 Calculate the total number of shares in the proposed acquisition. (2 marks) 2.1.3 Calculate the post-acquisition earnings per share. (5 marks)

2.2 Assume the acquisition is based on market values with a cash payment: 2 2.1 Calculate the post-acquisition increase/decrease price of the share (8 marks) 2.3 Consider the following information for two all- equity firms, A and B:

Company A Company B Shares in issue 2000 6000 Price per share R40 R30

Company A estimates that the value of the synergistic benefit from acquiring Company B is R6 000. Company B has indicated that it would accept a cash purchase offer of R35 per share. Should Company A proceed? Support your answer with relevant calculations. (7 marks)