Takeover – NBC Institute

AFM – Nov 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies

Discuss when takeovers make financial and economic sense and reasons why takeovers may fail to increase shareholder wealth.

Question

Despite substantial evidence, drawn from different countries and different time periods, that suggests the wealth of shareholders in a bidding company is unlikely to be increased as a result of taking over another company, takeovers remain an important part of the business landscape.

Required:
i) Explain briefly when a takeover will make economic and financial sense.
(3 marks)

ii) Discuss briefly FIVE (5) reasons why a takeover may fail to deliver an expected increase in wealth for the bidding company’s shareholders.
(5 marks)

Answer

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Tags: Acquisitions, Corporate Strategy, Mergers, Shareholder Wealth, Takeover
Level: Level 3

Topic: Acquisitions and mergers versus other growth strategies
Series: NOV 2018

AFM – May 2018 – L3 – Q3b – Valuation of acquisitions and mergers

Evaluating the favourability of a takeover and its impact on EPS and share price.

Question

Okumkom Ltd has a current price of GH¢2.20 per share and a price/earnings ratio of 15. At present, it has 10 million, GH¢1.00 ordinary shares issued. Okumkom Ltd is considering the takeover of Dasco Ltd. The current price of each of Dasco’s 4 million issued shares is 330 pesewas. Dasco’s price/earnings ratio is 10. Okumkom Ltd expects to be able to purchase the shares at their current price and will pay for them with an issue of its own shares valued at their current price.

Okumkom Ltd wishes to know how many shares to offer for each of Dasco Ltd’s shares, and the effect of the takeover on Okumkom Ltd’s reported earnings per share and share price.

Required:
Evaluate the favourability of this takeover and comment on your computations. (12 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Earnings Per Share (EPS), Price/Earnings (P/E) Ratio, Share Price, Takeover
Level: Level 3

Topic: Valuation of acquisitions and mergers
Series: MAY 2018

CR – Nov 2018 – L3 – Q3 – Business valuations

Identify valuation factors, determine share value using the net assets approach, and prepare the consolidated financial statement for GCC Bank Ltd after the takeover of Wunam Bank Ltd.

Question

The shareholders of Wunam Bank (Ghana) Limited have decided to sell the company to GCC Bank (Ghana) Limited following their inability to recapitalize the company as demanded by the Bank of Ghana. The statement of financial positions of the two banks as at 31 March 2018 are given below.

Additional Information:

Wunam Bank Ltd carries a huge non-performing loan portfolio. It is estimated that only 40% of the outstanding loans are recoverable.
Investments represent 91-Day Treasury Bills held as secondary reserves. An audit has shown that the investments were overstated in 2017, as interest on investments for that year amounts to GH¢4.15 million.
Other assets include long outstanding debits amounting to GH¢3.6 million, which are not represented by tangible assets.
Deposits amounting to GH¢3.75 million could not be accounted for. This phenomenon has prevailed since 2014 but has not been provided for in the accounts.
Property, Plant & Equipment includes an old banking software amounting to GH¢1.25 million, considered worthless. The remaining tangible fixed assets have been revalued at GH¢15.3 million.
Cash and balances with other banks include GH¢2.4 million due from Sakara Rural Bank Ltd, which was liquidated in 2016.
Other liabilities include interest earned on investments amounting to GH¢3.15 million.
Goodwill was assessed at 2.5% of adjusted deposits and current accounts.
Wunam Bank Ltd has invested in Government bonds worth GH¢12.6 million as at 31 March 2018 to fund new ATMs and branches.

Required: a) Identify FOUR (4) factors you would consider in determining the value to be placed on assets when using the net assets approach to valuation of Wunam Bank Ltd.
(4 marks)

b) Determine the value to be placed on the shares of Wunam Bank Ltd using the net assets approach to valuation.
(5 marks)

c) Prepare the statement of financial position of GCC Bank Ltd after the takeover using your answer in (b). Assume the following:

The purchase consideration was duly settled.
GCC Bank Ltd took over all assets and liabilities.
Goodwill was written off.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Valuation, Consolidation, Financial Reporting, Takeover, Valuation
Level: Level 3

Topic: Business valuations
Series: NOV 2018

BCL – Nov 2020 – L1 – Q3c – Legal Implications Relating to Companies in Difficulty or in Crisis

Briefly explain the concept of a takeover in relation to a company.

Question

Briefly explain take-over in relation to a company. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisition, Company Law, Takeover
Level: Level 1

Topic: Legal implications relating to companies in difficulty or in crisis
Series: NOV 2020

AFM – Nov 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies

Discuss when takeovers make financial and economic sense and reasons why takeovers may fail to increase shareholder wealth.

Question

Required:
i) Explain briefly when a takeover will make economic and financial sense.
(3 marks)

ii) Discuss briefly FIVE (5) reasons why a takeover may fail to deliver an expected increase in wealth for the bidding company’s shareholders.
(5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisitions, Corporate Strategy, Mergers, Shareholder Wealth, Takeover
Level: Level 3

Topic: Acquisitions and mergers versus other growth strategies
Series: NOV 2018

AFM – May 2018 – L3 – Q3b – Valuation of acquisitions and mergers

Evaluating the favourability of a takeover and its impact on EPS and share price.

Question

Okumkom Ltd wishes to know how many shares to offer for each of Dasco Ltd’s shares, and the effect of the takeover on Okumkom Ltd’s reported earnings per share and share price.

Required:
Evaluate the favourability of this takeover and comment on your computations. (12 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Earnings Per Share (EPS), Price/Earnings (P/E) Ratio, Share Price, Takeover
Level: Level 3

Topic: Valuation of acquisitions and mergers
Series: MAY 2018

CR – Nov 2018 – L3 – Q3 – Business valuations

Identify valuation factors, determine share value using the net assets approach, and prepare the consolidated financial statement for GCC Bank Ltd after the takeover of Wunam Bank Ltd.

Question

Additional Information:

Wunam Bank Ltd carries a huge non-performing loan portfolio. It is estimated that only 40% of the outstanding loans are recoverable.
Investments represent 91-Day Treasury Bills held as secondary reserves. An audit has shown that the investments were overstated in 2017, as interest on investments for that year amounts to GH¢4.15 million.
Other assets include long outstanding debits amounting to GH¢3.6 million, which are not represented by tangible assets.
Deposits amounting to GH¢3.75 million could not be accounted for. This phenomenon has prevailed since 2014 but has not been provided for in the accounts.
Property, Plant & Equipment includes an old banking software amounting to GH¢1.25 million, considered worthless. The remaining tangible fixed assets have been revalued at GH¢15.3 million.
Cash and balances with other banks include GH¢2.4 million due from Sakara Rural Bank Ltd, which was liquidated in 2016.
Other liabilities include interest earned on investments amounting to GH¢3.15 million.
Goodwill was assessed at 2.5% of adjusted deposits and current accounts.
Wunam Bank Ltd has invested in Government bonds worth GH¢12.6 million as at 31 March 2018 to fund new ATMs and branches.

Required: a) Identify FOUR (4) factors you would consider in determining the value to be placed on assets when using the net assets approach to valuation of Wunam Bank Ltd.
(4 marks)

b) Determine the value to be placed on the shares of Wunam Bank Ltd using the net assets approach to valuation.
(5 marks)

c) Prepare the statement of financial position of GCC Bank Ltd after the takeover using your answer in (b). Assume the following:

The purchase consideration was duly settled.
GCC Bank Ltd took over all assets and liabilities.
Goodwill was written off.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Valuation, Consolidation, Financial Reporting, Takeover, Valuation
Level: Level 3

Topic: Business valuations
Series: NOV 2018

BCL – Nov 2020 – L1 – Q3c – Legal Implications Relating to Companies in Difficulty or in Crisis

Briefly explain the concept of a takeover in relation to a company.

Question

Briefly explain take-over in relation to a company. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisition, Company Law, Takeover
Level: Level 1

Topic: Legal implications relating to companies in difficulty or in crisis
Series: NOV 2020

Question Tag: Takeover

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AFM – Nov 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies

Discuss when takeovers make financial and economic sense and reasons why takeovers may fail to increase shareholder wealth.

AFM – May 2018 – L3 – Q3b – Valuation of acquisitions and mergers

Evaluating the favourability of a takeover and its impact on EPS and share price.

CR – Nov 2018 – L3 – Q3 – Business valuations

Identify valuation factors, determine share value using the net assets approach, and prepare the consolidated financial statement for GCC Bank Ltd after the takeover of Wunam Bank Ltd.

BCL – Nov 2020 – L1 – Q3c – Legal Implications Relating to Companies in Difficulty or in Crisis

Briefly explain the concept of a takeover in relation to a company.

AFM – Nov 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies

Discuss when takeovers make financial and economic sense and reasons why takeovers may fail to increase shareholder wealth.

AFM – May 2018 – L3 – Q3b – Valuation of acquisitions and mergers

Evaluating the favourability of a takeover and its impact on EPS and share price.

CR – Nov 2018 – L3 – Q3 – Business valuations

Identify valuation factors, determine share value using the net assets approach, and prepare the consolidated financial statement for GCC Bank Ltd after the takeover of Wunam Bank Ltd.

BCL – Nov 2020 – L1 – Q3c – Legal Implications Relating to Companies in Difficulty or in Crisis

Briefly explain the concept of a takeover in relation to a company.

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AFM – Nov 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies

Discuss when takeovers make financial and economic sense and reasons why takeovers may fail to increase shareholder wealth.

You're reporting an error for "AFM – Nov 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies"

AFM – May 2018 – L3 – Q3b – Valuation of acquisitions and mergers

Evaluating the favourability of a takeover and its impact on EPS and share price.

You're reporting an error for "AFM – May 2018 – L3 – Q3b – Valuation of acquisitions and mergers"

CR – Nov 2018 – L3 – Q3 – Business valuations

Identify valuation factors, determine share value using the net assets approach, and prepare the consolidated financial statement for GCC Bank Ltd after the takeover of Wunam Bank Ltd.

You're reporting an error for "CR – Nov 2018 – L3 – Q3 – Business valuations"

BCL – Nov 2020 – L1 – Q3c – Legal Implications Relating to Companies in Difficulty or in Crisis

Briefly explain the concept of a takeover in relation to a company.

You're reporting an error for "BCL – Nov 2020 – L1 – Q3c – Legal Implications Relating to Companies in Difficulty or in Crisis"

AFM – Nov 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies

Discuss when takeovers make financial and economic sense and reasons why takeovers may fail to increase shareholder wealth.

You're reporting an error for "AFM – Nov 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies"

AFM – May 2018 – L3 – Q3b – Valuation of acquisitions and mergers

Evaluating the favourability of a takeover and its impact on EPS and share price.

You're reporting an error for "AFM – May 2018 – L3 – Q3b – Valuation of acquisitions and mergers"

CR – Nov 2018 – L3 – Q3 – Business valuations

Identify valuation factors, determine share value using the net assets approach, and prepare the consolidated financial statement for GCC Bank Ltd after the takeover of Wunam Bank Ltd.

You're reporting an error for "CR – Nov 2018 – L3 – Q3 – Business valuations"

BCL – Nov 2020 – L1 – Q3c – Legal Implications Relating to Companies in Difficulty or in Crisis

Briefly explain the concept of a takeover in relation to a company.

You're reporting an error for "BCL – Nov 2020 – L1 – Q3c – Legal Implications Relating to Companies in Difficulty or in Crisis"

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