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Subject F3: Financial Strategy

50 D

Value of Still Co at the moment = 6m × $3.56 = $21.36 million

After the acquisition, combined value will be

Spinning Co value + Still Co value + synergy

(10m × $5.05) + (6m × $3.56) + $10m = $81.86 million.

Still Co shareholders will own 30% of the combined company, so $24.56 million
(30% × $81.86m).

This is a gain of $3.20 million ($24.56m – $21.36m).

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