Question: S a) Make your recommendation about whether or not the acquisition should be pursued. b) Assume that Sparkling has accepted the take offer from Charging,
S a) Make your recommendation about whether or not the acquisition should be pursued. b) Assume that Sparkling has accepted the take offer from Charging, and that the new subsidiary must now be consolidated within Charging's financial statement. Taking Sparkling' most recent balance sheet and a restated market value of assets of $295.6 million, calculate the goodwill that must be booked for this transaction. c) If Charging's shares are currently trading at $62.43, then how many shares should Charging offer for every share of Sparking offer for every share of Sparking? Assumptions i. Sparking would become a wholly owned subsidiary of Charging. ii. Revenues will continue to grow to 4.3% for the next five years and will level off at 4% thereafter. iii. The cost of goods sold will represent 95% of revenue going forward. iv. Sales-force layoff will reduce Sales, general and Administration expenses to $22 million next year, with a 2% growth rate going forward. v. These layoff and other restructuring charges are expected to result in expensed restructuring charges of $30 million, $15 million, and $5 million (respectively) over the three years period. vi. Noncash expenses are expected to remain around $7 million going forward. vii. Interest expense are expected to remain around$11.5 million going forward viii. A tax rate of 31% is assumed going forward. ix. Charging's cost of equity is 12% x. Sparking's current market capitalization is $315.7 million. xi. Charging will offer Sparking a takeover premium of 20% over current market capitalization.
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