Question

ABC (Ltd) is a dairy company which is in the process of negotiating the acquisition of XYZ (Ltd). The management
estimates that the acquisition will result in economies of scale and the additional benefits will amount to R30 000 000.
ABC (Ltd) is prepared to make a cash payment of R55 000 000 for XYZ (Ltd).
The following information is available for the two companies:
ABC (Ltd) XYZ (Ltd)
Earnings per share R5.00 R4.00
Number of shares 5 000 000 3 000 000
Market value per share R15.00 R12.00
Required:
4.1 Calculate the value of the take-over.
4.2 Calculate the net present value of the proposed take-over.
4.3 Calculate the take-over premium.
4.4 Determine the market price per share after the proposed take-over.
Assume that ABC (Ltd) propose to its shareholders that they are willing to peruse a hostile takeover of XYZ (Ltd).
4.5 Determine SIX (6) takeover defenses that XYZ (Ltd) can utilize as a tactic to resist the takeover attempts of ABC
(Ltd). .

Answer 1

	ABC LTD	XYZ LTD
Nature	Acquirer	Target
EPS	5	4
No. of shares	5000000	3000000
Market value per share	15	12

4.1 Value of the takeover

value of take over = market value of the target company

=>No of shares * Market value per share of target compnay

=>3000000 * R.12/Share

=>R.36000000

-------------------------------------------------------------------------

4.2

Net Present value of the proposed take over =

=> current market value of the target company + synergy benefit

=>R.36000000+ R.30000000

=>R.66000000

------------------------------------------------------------------------

4.3

Take over premium=

= Total cash paid - current market value of the target co

=R.55000000- R.36000000

=R.19000000

---------------------------------------------------------------------------------

4.4

Price after proposed take over =

=( current market value of acquires co+ current market value of target co+synergy benefit- cash payment made) / no of shares of acquirer co

=((5000000*15)+(3000000*12)+30000000-55000000) / 5000000 shares

=R.17.2 PER SHARE

----------------------------------------------------------------------------------------

4.5

Following are 6 take over defense that XYZ can use-

1. STOCK REPURCHASES-

-Stock repurchases is apurchase by the target of its own issued shares from its shareholders.

2. STAGGERED BOARD-

it is board inwhich olny a certain number of directors usually one third is reelected annually. it is apowerful anti take over defense.

3. GOLDEN PARACHUTES-

these are additional compensation to the target company's top management in case of termination of its employment following a successful hostile take over. since these compensations decrease the targets assets , this defense reduces the willingness to acquire the company.

4.STAND STILL AGREEMENT-

it is an undertaking by the acquirer not to acquire any more shares of the target company within acertain period of time.

5.GREENMAIL-

it refers to the buy out byt the target of its own share from the hostile acquirer with apremium over the market price, which results in the acquirer's agreement not to pursue obtaining control of target company in the near future.

6.REVERSE ACQUISITION

in this the target company demands such shares in the acquirer company that ultimately the target company holds majority shares in the acquirer company.