QUESTION TWO (25 Marks) Bella Limited, a software development company is contemplating the acquisition of Bong Limited 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 R24 million. It was agreed that the purchase consideration for the Bong Limited acquisition should be based on an exchange of 1.4 shares of Lexis Limited for each share of Bong Limited Key acquisition data is detailed below: Company No. of shares Bella Limited 18.8 million Bong Limited 13.2 million Price per share R32 R28 Earnings after Tax R26 million R19 million 2.5 How much will the shareholders of Bong Limited gain or lose on a per-share basis. (2) 2.6 Determine the purchase price of Bong Limited that is implied by the 1.4 exchange ratio. (3) 2.7 Calculate the net present value of the proposed acquisition. (4) 2.8 Calculate the proposed acquisition premium. (3) 2.9 Compute the earnings per share for Bella Limited before and after the proposed acquisition. Assume that the earnings after tax after the proposed acquisition is R35 million. (4) |