Company T has 1,000 million shares in issue with a current share price of $10...

CIMA F3 Question Answer

Company T has 1,000 million shares in issue with a current share price of $10 each.

Company V has 300 million shares in issue with a current share price of $5 each.

Company T is considering acquiring Company V.

Total synergy gains of $100 million have been estimated.

The purchase of Company V's shares would be by cash at a 10% premium above the current share price.

In seeking approval for the acquisition, the likely reaction from T's shareholders will be:

accepted as there is $100 million of synergy which will all go to T's shareholders.

accepted as there will be an increase in the value of the business of $1,500 million.

rejected as T's shareholders will see a decrease in their wealth overall of $50 million.

rejected as T's shareholders will not be willing to pay more than $1,500 million for V.

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