Box plc is considering the acquisition of circle plc the, Ask an Expert

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Box plc is considering the acquisition of Circle plc. The former is valued at £100m and the latter at £50m by the market.

Economies of scale will result in savings of £2.5m annually in perpetuity. The required rate of return on both firms and the combination is 11 per cent.

The transaction costs will amount to £1m.

A. What is the present value of the gain form the merger?

B. If a cash offer of £70m is accepted by Circle's shareholders what is the value created for Box's shareholders?

C. If shares are offered in such a way that Circle's shareholders would possess one-third of the merged entity, what is the value created for Box's shareholders?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91796431

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