Determine the maximum exchange ratio

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Use the following information to answer question 3.1 to 3.3:Links Ltd., a logistics company, is considering buying a smaller competitor in the same industry it operates in. The competitor, Smartmove Ltd., is a more technologically advanced, but resource limited, company.

The management of Links Ltd. feels that the company could incorporate the technology Smart move Ltd. has developed to realise significant cost savings and better their customer experience and therefore increase revenue. The potential customer base acquired from Smart move Ltd would be inconsequential to a company of Links Ltd's size and does not factor into the decision. Links Ltd wants to acquire 100% of the outstanding shares of Smartmove Ltd given the sensitivity of the technology to its business competitiveness. Links Ltd plans to use an issue of shares to fund the acquisition. Links Ltd has 100m shares in issue currently trading at R 10 apiece and EPS of R 1.00 while Smartmove Ltd has 10m shares in issue trading at R1 apiece with EPS of R 0.10. Synergistic earnings of R 5m per year is expected post the merger

Determine the maximum exchange ratio based on an EPS valuation that Links Ltd can offer without diluting its EPS, taking synergistic benefits into account.

Reference no: EM132635080

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