73% Question 11 (3 + 3 +5+2= 13 marks) Black Inc (BI) has recently announced its intention to acquire White Ino. (WI). Information about the wo companies" relevant share prices and shares outstanding is provided below: Black Inc White Ine, $20 $25 Share price Number of shares outstanding 30,000,000 I 12,000,000 31 has also determined the following cash flows will occur as a result of the proposed acquisition. One-off'integration costs of $2 million per year will be incurred at the beginning of the first two years The combined businesses will increase the net cash flows by $2.5 million per year in perpetuity, with these cash flows starting 2 years from now. Elimination of duplicate back-office roles such as HR, OHS etc. will result in net savings of $3 million per year for four years, starting two years from now. Assuming that the acquisition occurred immediately and that the appropriate opportunity cost of capital is 10% per annum, answer the following questions. a) What is the gain from the acquisition? Show all workings. b) BI's chairman is considering splitting the gain 60-40 (that is 60% to BI, 40% to WI) between the two sets of shareholders. Calculate the offer price BI would need offer to WI shareholders (using cash) on a per share basis to achieve this objective. Show all workings c) BI's chairman is also interested in making a stock offer for all of WI shares. What is the maximum exchange ratio that I can offer to WI's shareholders before BI shareholders start to suffer a loss on the deal? Show all workings. d) BI's chairman finally decided to offer 33 % of the ownership of the merged firm to Wr's shareholders. Given this offer, calculate the proportion of synergies from the takeover retained by BI's shareholders. Show all workings. 73% Question 11 (3 + 3 +5+2= 13 marks) Black Inc (BI) has recently announced its intention to acquire White Ino. (WI). Information about the wo companies" relevant share prices and shares outstanding is provided below: Black Inc White Ine, $20 $25 Share price Number of shares outstanding 30,000,000 I 12,000,000 31 has also determined the following cash flows will occur as a result of the proposed acquisition. One-off'integration costs of $2 million per year will be incurred at the beginning of the first two years The combined businesses will increase the net cash flows by $2.5 million per year in perpetuity, with these cash flows starting 2 years from now. Elimination of duplicate back-office roles such as HR, OHS etc. will result in net savings of $3 million per year for four years, starting two years from now. Assuming that the acquisition occurred immediately and that the appropriate opportunity cost of capital is 10% per annum, answer the following questions. a) What is the gain from the acquisition? Show all workings. b) BI's chairman is considering splitting the gain 60-40 (that is 60% to BI, 40% to WI) between the two sets of shareholders. Calculate the offer price BI would need offer to WI shareholders (using cash) on a per share basis to achieve this objective. Show all workings c) BI's chairman is also interested in making a stock offer for all of WI shares. What is the maximum exchange ratio that I can offer to WI's shareholders before BI shareholders start to suffer a loss on the deal? Show all workings. d) BI's chairman finally decided to offer 33 % of the ownership of the merged firm to Wr's shareholders. Given this offer, calculate the proportion of synergies from the takeover retained by BI's shareholders. Show all workings