Consider the following pre-merger information about Mawar Berhad and Melor Berhad: 

Mawar Berhad Melor Berhad Number of shares outstanding 20,000 12,000 

Price per share RM12.00    and    RM6.00

 Mawar Berhad is considering acquiring Melor Berhad as part of the company’s strategic plan to increase efficiency through economic of scale in its core business.

 Mawar Berhad is evaluating two possible options either to pay RM5.25 in cash for every share of Melor Berhad or to offer two (2) of its shares in exchange for ten (10) shares of Melor Berhad. 

Both firms are 100% equity-financed. 

Mawar Berhad estimates that the incremental benefits from this exercise to be worth RM50,000. 

From the above information: 

Should Mawar Berhad proceed with the merger? If yes, which alternative should Mawar Berhad choose?

(Provide a clear calculations and explanations.)

Answer rating: 100% (QA)

Option 1 Paying RM525 in cash for every share of Melor Berhad Total cost for Mawar Berhad Number of ... View the full answer