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QUESTION 4 (25 Marks) Vivo Refiners is contemplating the acquisition of Rich Lid by means of a share issue. The combination of the two firms' operations will result in economies of scale and the additional value generated is estimated to be R20 million. The Financial Directors of the two companies have agreed to an equal split of this value between each firm's shareholders. It was also agreed that the purchase consideration for the Rich Lid acquisition should be based on an exchange of 1.25 shares of Vivo Refiners for each share of Rich Ltd. Key acquisition data is detailed below: Company No. of shares Price per share Earnings after Tax Vivo Refiners 8 million R12 10 million Rich Ltd 5 million R9 R7 million Required: 4.1 Calculate the combined value of the proposed acquisition. (3 marks) 4.2 Calculate the total number of shares in the proposed acquisition. (2 marks) 4.3 Determine the proposed post-acquisition market price per share (2 decimal places). (2 marks) 4.4 Will the shareholders of Vivo Refiners be happy with this price? Why? (2 marks) 4.5 How much will the shareholders of Rich Lid gain or lose on a per share basis. (2 marks) 4.6 Determine the purchase price of Rich Ltd that is implied by the 1.25 exchange ratio. (3 marks) 4.7 Calculate the net present value of the proposed acquisition. (4 marks) 4.8 Calculate the proposed acquisition premium, (3 marks 4.9 Compute the earnings per share for Vivo Refiners before and after the proposed acquisition. (4 marks) END OF PAPER