Share Swap Transactions Ratio of exchange is the ratio of the amount paid per share of the target company to the market price per share of the acquiring company Assume that the acquirers share price is $80 and the target's shares have a market price of $75. If the acquirer offers $110 per share for the target, the ratio of exchange is1.375($110÷$80)
Share Swap Transactions • Ratio of exchange is the ratio of the amount paid per share of the target company to the market price per share of the acquiring company. • Assume that the acquirer’s share price is $80 and the target’s shares have a market price of $75. If the acquirer offers $110 per share for the target, the ratio of exchange is 1.375 ($110 ÷ $80)
Share Swap Transactions The ratio of exchange is used in assessing the effects of a proposed takeover on EPS, both in the short-term and the long run The ratio is also used in evaluating the effect of a takeover on the market price of the acquiring company's shares Read the text (pp. 710-715)and work through the various examples
Share Swap Transactions • The ratio of exchange is used in assessing the effects of a proposed takeover on EPS, both in the short-term and the long run. • The ratio is also used in evaluating the effect of a takeover on the market price of the acquiring company’s shares. • Read the text (pp. 710-715) and work through the various examples
Financial evaluation of Takeovers A capital budgeting decision ° NPV technique Incremental cash flows
Financial Evaluation of Takeovers • A capital budgeting decision • NPV technique • Incremental cash flows