Macro PLC current has 1 million shares outstanding, with a market value of 30 per share. Macro is expected to pay a dividend of 3 per share next year and the dividends are expected to grow constantly at 5% a year.

Macro PLC is approaching Micro PLC for a potential acquisition. Macro is making an offer to acquire the whole of Micros 500 thousand shares, which are currently valued at 4 on the market.

Micro PLC is expected to pay a dividend of 1 per share in a years time and the dividends are expected to grow at 4% for a foreseeable future.

The expectation is that if the acquisition is successful, the merged company will be able to deliver a better dividend growth rate of 8%.

Required:

1. Estimate the gain of the acquisition if it goes ahead. (12 marks)
2. How much is the cost of the acquisition under the current 6 cash payment offer? (2 marks)

Critically discuss at least three sensible motives for mergers and acquisitions.