Makmur Bhd is currently evaluating a potential merger with Cahaya Bhd to accelerate the business growth. Makmur Bhd hired consultant to evaluate the viability of the merger exercise. The relevant information for each firm prior to the merger is provided as follows:

	Makmur Bhd	Cahaya Bhd
Market price per share	RM 18	RM 12
Number of shares outstanding	30 million	10 million

 

The consultant estimates that the net present value of the anticipated synergy benefits is RM75 million. It also recommends a merger through the issuance of RM10 million units of shares in a merged firm in exchange for all units of shares of Cahaya Bhd. Both companies have no outstanding debt obligations.

 

(a) Determine the value of the combined firm if the merger take place. 

(b) Calculate the premium that Makmur Bhd would have to pay for the acquisition. 

 

(c) Calculate the net present value (NPV) of the acquisition to Makmur Bhd based on the proposed shares exchange. 

 

(d) Based on your answer in (c) above, advise the shareholders of Makmur Bhd whether to vote for the merger or reject the recommendation

Answer rating: 100% (QA)

a Value of the combined firm if the merger take place Value of Makmur Bhd Value of Cahaya ... View the full answer