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QUESTION THREE Martin Corp. is in the process of negotiating the acquisition of Links Limited. The management estimates that the acquisition will result in economies of scale and the additional benefits will amount to R18 500 000. The following information is available for the two companies: Martin Corp.: The earnings per share and dividends per share are R2.38 and R2.05 respectively. A 8% growth rate is maintained and the number of issued shared are 7 500 000 with a market price of R32 per share. Links Limited: The earnings per share and dividends per share are R1.50 and 95 cents respectively. A 5% growth rate is maintained and the number of issued shared are 2 200 000 with a market price of R12 per share. 3.1 Calculate the exchange ratio based on market values (3 marks) 3.2 Calculate the exchange ratio based on earnings per share (3 marks) 3.3 Calculate the post-acquisition earnings per share, based on 3.2 (8 marks) 3.4 Calculate the benefits, if any, to the companies (4 marks) 3.5 (3 marks) Assume that Martin Corp. agree to a one-for-one exchange of shares, calculate the expected post- acquisition earnings per share 3.6 (4 marks) Assuming a post-acquisition Price/Earnings Ratio (P/E) of 17, calculate the expected post- acquisition market price and compare it to next year's expected price without the acquisition. Should Martin Corp. acquire Links Limited? Why? (Use earnings per share derived from 3.3)

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