Bidder Ltd is considering the acquisition of Target Ltd. Both firms operate in the same industry...

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Bidder Ltd is considering the acquisition of Target Ltd. Both firms operate in the same industry in which they are competitors. Bidder has identified potential annual gains from the acquisition of $275,000 per annum into perpetuity with the first gain occurring exactly one year after acquisition. There is also a once off gain of $750,000 at the time of acquisition. The appropriate opportunity cost of capital is 8% per annum. Currently, Bidder has 6 million shares on issue at a market price of $1.50 per share. Target has 500,000 shares on issue at a market price of $5.00 per share. Bidder makes an offer to Target shareholders of either $6.75 per share or alternatively 4 shares in Bidder for every 1 share in Target. 11. Identify two likely sources of the potential takeover gains. [no more than 100 words] 12. In present value terms, what is the total gain from the acquisition? You are to assume that the annual takeover gains occur will start at the end of year two, the once off gain will occur at the end of six months and that the acquisition is to proceed immediately. 13. You are to make a recommendation to the shareholders of Target by commenting on the net cost of the cash and scrip offer for Target's shareholders. Show all calculations. 14. Briefly describe a regulatory response that may inhibit this acquisition from occurring Bidder Ltd is considering the acquisition of Target Ltd. Both firms operate in the same industry in which they are competitors. Bidder has identified potential annual gains from the acquisition of $275,000 per annum into perpetuity with the first gain occurring exactly one year after acquisition. There is also a once off gain of $750,000 at the time of acquisition. The appropriate opportunity cost of capital is 8% per annum. Currently, Bidder has 6 million shares on issue at a market price of $1.50 per share. Target has 500,000 shares on issue at a market price of $5.00 per share. Bidder makes an offer to Target shareholders of either $6.75 per share or alternatively 4 shares in Bidder for every 1 share in Target. 11. Identify two likely sources of the potential takeover gains. [no more than 100 words] 12. In present value terms, what is the total gain from the acquisition? You are to assume that the annual takeover gains occur will start at the end of year two, the once off gain will occur at the end of six months and that the acquisition is to proceed immediately. 13. You are to make a recommendation to the shareholders of Target by commenting on the net cost of the cash and scrip offer for Target's shareholders. Show all calculations. 14. Briefly describe a regulatory response that may inhibit this acquisition from occurring

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Solution 11 The two likely sources of potential takeover gains in this acquisition are a Synergy gains Bidder expects to achieve synergies by combining operations with Target such as cost savings thro... View the full answer