Sigra Co is a listed company producing confectionary products which it sells around the world. It wants to acquire Dentro Co, an unlisted company producing high quality, luxury chocolates. Sigra Co proposes to pay for the acquisition using one of the following three methods:
Method 1
A cash offer of Shs. 5.00 per Dentro Co share
Method 2
An offer of three of its shares for two of Dentro Co's shares
Method 3
An offer of a 2% coupon bond in exchange for 16 Dentro Co's shares. The bond will be redeemed in three years at its par value of Shs. 100.
Extracts from the latest financial statements of both companies are as follows:

Sigra Co
Dentro Co

Shs. '000
Shs. '000

Sales revenue
44,210
4,680

Profit before tax
6,190
780

Taxation
(1,240)
(155)

Profit after tax
4,950
625

Dividends
(2,700)
(275)

Retained earnings for the year
2,250
350

Non-current assets
22,450
3,350

Current assets
3,450
247

Non-current liabilities
9,700
873

Current liabilities
3,600
436

Share capital (40c per share)
4,400
500

Reserves
8,200
1,788

Sigra Co's current share price is Shs. 3.60 per share and it has estimated that Dentro Co's price to earnings ratio is 12.5% higher than Sigra Co's current price to earnings ratio. Sigra Co's non-current liabilities include a 6% bond redeemable in three years at par which is currently trading at Shs. 104 per Shs. 100 par value.
Sigra Co estimates that it could achieve synergy savings of 30% of Dentro Co's estimated equity value by eliminating duplicated administrative functions, selling excess non-current assets and through reducing the workforce numbers, if the acquisition were successful.
Required
Estimate the percentage gain on a Dentro Co share under each of the above three payment methods. Comment on the answers obtained. (12 marks)
Briefly discuss FOUR issues, in this case, that may prevent the acquisition being successful. (4 marks)
In relation to the acquisition, the board of directors of Sigra Co are considering the following two proposals:
Proposal 1
Once Sigra Co has obtained agreement from a significant majority of the shareholders, it will enforce the remaining minority shareholders to sell their shares.
Proposal 2
Sigra Co will offer an extra 3 cents per share, in addition to the bid price, to 30% of the shareholders of Dentro Co on a first-come, first-serve basis, as an added incentive to make the acquisition proceed more quickly.
Required
With reference to the key aspects of the global regulatory framework for mergers and acquisitions, briefly discuss the above proposals.

Answer rating: 100% (QA)

a Calculate the gain on a Dentro Co share using the three payment options listed above Sigra Co share count 440000004 11000000 shares Earnings per sha... View the full answer