Question

You are the CEO of a private company and want to buy it. There is one major shareholder who owns 70 percent of the firm. The remaining 30 percent is held by oceanic shareholders. Based on a DCF model, you estimate the base value of the firm to be $100 million. This excludes any liquidity discount and/or control premium. Based on your observations of the market, liquidity discounts are about 30 percent and control premiums are about 15 percent for similar deals. Your firm has 80 million shares outstanding. What would you offer to pay in total and per share to the controlling shareholder? To the oceanic shareholders?What if it were not a private company but a public company. Show how would that change your calculation and answers?

Answer 1

As a Private limited Company Controlling benefit goes to all share holders so total cosideration to the major shareholder who owns 70 percent is ($100 mil/1.3) x 1.15 x 70%=61.92 millions in total and per Share is $1.106

Computation ((100 Mil/1.3) x 1.15) = 88.462 Mil total value of the firm is devided by number of shares i.e. 80 million shares= $1.106.

the value per share $1.106 will be paid to Ocianic share holder and total is $26.53 Millions. because private limited company and controlling benefits available to minor share holders also.

If it is a public limited company is the value in total and per share will not be changed to major sharholder.

The payment to ocianic shareholder in total will be $23.077 millions (i.e, (100/1.3)/80)x24)and per share will be $0.962 (i.e, (100/1.3)/80))