How many shares should utara offer for all shares

Assignment Help Accounting Basics
Reference no: EM133043173

Question - Utara Corporation and Selatan Company are competitors in the business of electrical components distribution. Selatan is the smaller firm and has attracted the attention of the management of Utara, for Selatan has taken away market share from the larger firm by increasing its sales force over the past few years. Utara is considering a takeover offer for Selatan and asked you to serve on the acquisition valuation team that will turn into due diligence team if an offer is made and accepted. Given the financial information and proposal assumptions that follows, how would you respond to (a) and (b)?

Selatan Company

Condensed Income Statement

Previous five years (in RM million)

Assumptions

i) Selatan would become a wholly owned subsidiary of Utara.

ii) Revenues will grow by 4% in 2021.

iii) The cost of goods sold could be reduced to 91% of revenue.

iv) Sales, general and administration (SG&A) expenses are expected to be reduced to 2% of revenue.

v) Depreciation expenses are expected to remain around RM7 million.

vi) Interest expenses are expected to remain around RM11.5 million.

vii) A tax rate of 31% is assumed going forward.

viii) Cash flows from operations are expected to increase by 3% indefinitely.

ix) Selatan's cost of equity is 12%.

x) Selatan's current market capitalization is RM250 million with 10 million shares outstanding.

xi) Utara will offer Selatan a takeover premium of 20% over current market capitalization.

xii) Layoffs and other restructuring charges are expected to result in after-tax restructuring charges of RM30 million, RM15 million, and RM5 million (respectively) over the next three years (2021 to 2023). (Hint: These charges are one-offs and not a part of cash flows from operations)

Required -

a) Make your recommendation about whether the acquisition should be pursued. Make and state any additional assumption that you made in solving this case.

b) If Utara has 30 million shares outstanding that are currently trading at RM60.00, then how many shares should Utara offer for all shares of Selatan? Assume that the synergy created is RM100 million and Utara will offer Selatan a takeover premium of 20% over current market capitalization, which is RM250 million (Hint: This question is not related to part a).

Reference no: EM133043173

Questions Cloud

Determine policies or resolving grievances : -What are some key differences for HRM professionals in addressing issues with non-union healthcare employees and those represented by a union?
Responsibility of valuing the trademark : A trademark is an intangible asset that has value to a business. Assume that you are an accountant with the responsibility of valuing the trademark of a well-kn
Calculate the total amount of interest : he interest rate is 8 percent per year and the loan to be completely repaid in 5 years. Prepare an amortization schedule and calculate total amount of interest
Human resources in a global technological environment : Now let us take a look at what it takes to put it all together. How do you manage human resources in a global technological environment?
How many shares should utara offer for all shares : If Utara has 30 million shares outstanding that are currently trading at RM60.00, then how many shares should Utara offer for all shares of Selatan
Distinguish the cities of sparta and athens : What are the physical characteristics, political organization and economy that distinguish the cities of Sparta and Athens? Describe them.
Evaluate and implement strategies to improve resource usage : Conduct a meeting with the other chef and the restaurant manager of Acumen Restaurant - demonstrate your ability to analyse information from a range of sources
Calculate the current market price of your bond : Today, the YTM on your bond is 8%. With this information, can you calculate the current market price of your bond
Explain overall management of employees : Knowing that employee relations (ER) relates to the overall management of employees to ensure their productivity, engagement, professional development

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd