Roslyn Oil is contemplating the acquisition of Mossel Bay Oil by means of a share issue. The combination of the two firms’ operations will result in economies of scale and the additional value generated is estimated to be R16 million. The Financial Directors of the two companies have agreed to an equal split of this value between each firm’s shareholders. It was also agreed that he purchase consideration for Mossel Bay Oil acquisition should be based on an exchange of 1.5 shares of Roslyn Oil for each share of Mossel Bay Oil. Key acquisition data is detailed below: Company No. of shares Price per share Earning after Tax Roslyn Oil 6 million R16 R8 million Mossel Bay Oil 4 million R12 R6 million Required:
1. Calculate the combined value of the proposed acquisition.
2. Calculate the total number of shares in the proposed acquisition.
3. Determine the proposed post-acquisition market price per share. (2 decimal places)
4. Will the shareholders of Roslyn Oil be happy with this price? Why?
5. How much will the shareholders of Mossel Bay Oil gain or lose on a per share basis?
6. Determine the purchase price of Mossel Bay that is implied by the 1.5 exchange ratio.
7. Calculate the Net Present Value of the proposed acquisition.
8. Calculate the proposed acquisition premium.
9. Compute the earnings per share for Roslyn Oil before and after the proposed acquisition.