Ican 2021 Strategic Financial Management Question 5

Ponk Plc is a market research company. It has seen significant growth in recent years and obtained a stock market listing 5 years ago. Due to current economic and political turmoil in the country, there has been a significant drop in revenue and profit. Ponk Plc is planning a takeover bid for XY, a rival market research company specialising in the telecommunication industry – an industry that has been very resistant to the current economic turbulence in the country. XY has an advanced information technology and information system which was developed in-house and which Ponk Plc would acquire the rights to use. Ponk Plc plans to adopt XY’s information technology and information system following the acquisition and this is expected to be a major contributor to the overall estimated synergistic benefits of the acquisition. These benefits are believed to worth ₦8million (in cash flow) at the end of the first year of acquisition and growing annually at 5%. Ponk Plc has 30 million shares in issue and a current share price of ₦69 before any public announcement of the planned takeover. XY has 5 million shares in issue and a current share price of ₦128.40. It is believed that the WACC of the combined company will be 15% p.a. The directors of Ponk are considering 2 alternative bid offers: Bid offer 1 – Share based bid of 2 Ponk Plc shares for each of XY share. Bid offer 2 – Cash offer of ₦135 per XY share.