Unit $5$: MUnit $5$: M

Unit $5$: M&A VALUATION

Assignment

ABC Ltd is a company operating in software industry. It is considering the acquisition of XYZ Ltd with shares. The relevant financial information is as follows:

$\backslash$table$[[,$ABC Ltd$,$XYZ Ltd$],[$Present carnings $($Rm$),900,300],[$Number of outstanding shares$($m$),150,60],[$Price carnings ratio,$15,10]]$

ABC Ltd is planning to offer a premium of $25\%$ over the market price of XYZ Ltd$.$ Determine the following:

$($a$)$ The exchange ratio

$(3)$

$($b$)$ The number of shares to be used by ABC Ltd to buy XYZ Ltd

$($c$)$ EPS of new company after the merger

$($d$)$ Determine the offer price $($ P $)$ at which the postmerger earnings will be diluted.

$(2)$

$($c$)$ What is the postmerger P$/$E ratio.

$(2)$

$2.$ Refering to the information for 'Big Pharma Acquisition of Biotech using Real Options', determine the value of the put option using the Black$-$Scholes put option formula

$P=x{e}^{-rt}[1-N(d_2)]-S[1-N(d_1)]$

Where $N(d_1)$ and $N(d_2)$ can be determined using formulas $(15\mathrm{.}19)$ and $(15\mathrm{.}20)$ on page $572$ of the textbook. S is given to be $$650$ million, with the exercise price, X $.$ being $$455$ million. The term of the option is $3$ years with the risk$-$free rate at $5\frac{\%}{p}.a.$ and the standard deviation is $50\%.$ Use the standard normal tables to determine the values for $N(d_1)$ and $N(d_2).$

Marks:

$20$ marks

Due Date:

Day $1($Monday$)$ of Unit $7$ by $12$noon$/12$ midday