Equity – M&A (Schweser Mock Exam 1 AM) – Stuck please help!

Hi @Alta12

I’m assuming the formula is [$125m + $90m] / 8m x 3m = $84,375,000. This is a comparison of the cash route vs the shares route. The lead-up to that formula is something like this:

Total value of F + U following Cash Route = Total value of F + U following Shares Route
$135m + $90m = [Value of 1 share post acquisition price] x 8m shares
Value of 1 share post acquisition price = [$135m + $90m] / 8m

Value of total shares to Debian shareholders = Value of 1 share post acquisition price x 3m
= [$135m + $90m] / 8m x 3m
= $84,375,000

We then need to compare this calculated value to the actual value of Ubuntu to Debian, hence

Gain to Debian Shareholders = $84.375m – $85m
= – $625,000

Hope that helps! 🙂

@niravjoshi1988 – good question.

Par value (for shares) is somewhat an arbitrary concept mainly for legal and accounting purposes. In short, it is the face value (or nominal value) of shares at issuance, which is usually a low number. It doesn’t reflect market value, but simply done to represent the minimum value of a share that a company cannot issue below at.

So in this case par value is put there to confuse you 🙂

Hey,

One doubt about this question. Did anyone notice that previously outstanding shares had par value of $10 and newly issued shares has par value of $1. Still we are using total 8 mn as number of shares outstanding.

Should not difference of par value have any impact here?

Might be a dumb question……

@Alta12 i did that one last week so I could still remember that question.

Basically the formula is this:

Value of both merged firms are = acquirer (pre) + target (pre) + synergies – cash paid

$135m = $132 + $85 + synergies – $90m

What’s in the first post above was –> Value of Fedora (pre-acquisition) $132

so, if you work out the above formula the synergies would be $8m.

Now that you are paying via stock, so you have to add $90m back to $135m (as this figure includes cash payment).

Hope that helps but let me know if you want further explanation.