Question

Fast Inc. is planning to acquire Loose ltd. After the acquisition, there will be synergies worth...

Fast Inc. is planning to acquire Loose ltd. After the acquisition, there will be synergies worth 20

million NOK. Fast Inc. is all equity financed, its assets' value is 100 million NOK and there are 1000

shares outstanding. Loose ltd. has assets worth 80 million NOK, a debt-to-equity ratio of 30% and

1000 shares outstanding. The acquisition will be paid with new shares issued by Fast Inc.

How many shares of the new company will Loose stockholders receive for each stock they hold in

Loose ltd. if the profit from synergies will be equally split between stockholders of the two

companies? Assume perfect capital markets and no taxation.

A. 0.65

B. 0.75

C. 1.00

D. 1.54

E. I choose not to answer

The answer is A

can anyone help me with the calculation? thank you.

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Homework Answers

Answer #1

Value of loose Ltd. = 80 millions

Debt to equity ratio = 30%

it means debt = 0.30, Equity is 1.00

Total capital is 1.30

So, value of equity = 80 millions * 1.0/1.3 61538461.54 NOK

Add : Half of synergic benefits (20/2) 10000000 NOK

--------------------

Total value = 71538461.54

No of shares = 1000

--------------------

Value per share = 71538461.54/1000 71538.46154 NOK

--------------------

Value of Fast Inc. 100000000 NOK

whole value is equity

Add: Half of synergic benefits(20/2) 10000000 NOK

--------------------

Total value = 110000000

No of shares = 1000

--------------------

Value per share = 110000000/1000 110000 NOK

--------------------

Exchange ratio formula = Value per share of aTarget company / Value per share of Acquiring company

71538.46154 /110000

0.6503496503

So, loose ltd. stockholders will receive 0.65 share of Fast inc. for 1 share held by them.

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