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Question 2

1. Discuss about reasons for one firm to acquire another firm. Support your discussion with appropriate examples (maximum 350 words).

(Total: 14 Marks)

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2. Gold plc intends to acquire Silver plc. The stock price of Silver plc has risen in anticipation of an acquisition offer from Gold plc. Explain how the increase in the stock price complicates Gold plcs evaluation of Silver plc (maximum 150 words).

(Total: 6 Marks)

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3. Merlo is analysing the possible acquisition of Eagle. Neither firm has debt. Merlo estimates that the value of the synergistic benefit from acquiring Eagle is 16.5 million. The current market values of Merlo and Eagle are 1.6 billion and 400 million, respectively. Merlo intents to offer 35 per cent of its equity to Eagle. Does it make economic sense for Merlo to proceed with acquisition?

(Total: 5 Marks)

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4. Ash Equipment is planning acquiring Oliver Machinery. Ash Equipment will pay Oliver's shareholders the current value of their equity in shares of Ash Equipment. Ash Equipment currently has 4,600 shares of equity outstanding at a market price of 31 a share. Oliver Machinery has 1,600 shares outstanding at a price of 38 a share. What is the value per share of the combined firm?

(Total: 5 Marks)

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