The directors of Ted Limited, a hotel and leisure group operating along the coastal seaboard of South Africa have appointed you as a merger and acquisition specialist. They are considering the

acquisition of Baker Limited. You are to advise them whether or not to proceed with the project.

The following information is available:

The market price per share for Ted Limited is R$10\mathrm{.}00$ with $2000000$ shares in issue and an earnings per share of R$3\mathrm{.}00.$ Whereas, Baker limited has $1000000$ shares in issue with a market price of

R$8\mathrm{.}00$ per share and an earnings per share of R$2\mathrm{.}40.$

$$ Cash payment to Baker Limited $=$ R$25$ million.

$$ Synergy benefits of R$13$ million will accrue through the acquisition.

Required:

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

$3\mathrm{.}1$ Calculate the combined value of the proposed acquisition. $(2$ Marks$)$

$3\mathrm{.}2$ Determine the net present value of the proposal. $(2$ Marks$)$

$3\mathrm{.}3$ Calculate the acquisition premium. $(2$ Marks$)$

$3\mathrm{.}4$ Calculate the post$-$acquisition market price of the share $(3$ Marks$)$

$.$

$3\mathrm{.}5$ Determine the post$-$acquisition increase$/$decrease price of the share. $(2$ Marks$)$

Assume the acquisition is based on earnings per share:

$3\mathrm{.}6$ Determine the exchange ratio based on earnings per share. $(2$ Marks$)$

$3\mathrm{.}7$ Compute the total number of shares in the proposed acquisition. $(3$ Marks$)$

$3\mathrm{.}8$ Calculate the post$-$acquisition earnings per share. $(4$ Marks$)$

$3\mathrm{.}9$ Calculate the benefits, if any, to the two parties. $(5$ Marks$)$