Goldblade plc is about to launch a bid for Membrane plc. Both companies are in the light manufacturing industry. Goldblade plc is currently deciding how it will go about financing the takeover. You are provided with information on the two companies below:
Statements of profit or loss for year ended 31 December

Financial position statements as at 31 December

(debt divided by debt plus equity; equity at market value, debt at book value) Goldblade expects that in order to secure a controlling share in Membrane it will have to offer a premium of 20 per cent on the current market price of Membrane's shares. Goldblade's long-run cost of borrowing currently stands at 10 per cent. The company is considering whether to finance the deal using a share-for-share offer or a cash purchase.
(a) If the company were to finance the takeover using a share-for-share offer, advise Goldblade plc on what form the offer should take and the number of shares it will issue.
(b) In light of the information given above, critically evaluate whether a cash offer or a share-for-share offer would be more appropriate for Goldblade plc.

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Goldblade plc Membrane plc 122 49 73 48 18 30 Profit before interest and tax Interest payments Profit before tax Corporate tax (at 30%) Profit after tax Dividends Retained profit 21 51 18 13 Goldblade plc 508 82 Membrane plc Non-current assets Current assets 228 Inventory Trade receivables Cash 34 30 25 317 59 715 Total assets Equity finance 80 144 224 353 138 715 £3.65 46 86 132 121 64 317 £2.03 Ordinary shares (50p) Reserves Long-term bank loans Current liabilities Total liabilities Current share price (end of December) Year low: Year hi Average industry gearing level: E3.12 £3.78 4096 £1.85 £2.47