What theoretical share price share for share exchange
Establish what theoretical share price may be after the merger in a share for share exchange incorporating the effects of synergy. Adopt the 5 steps listed below:
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Step 1
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Calculate market values of both the companies before the merger i.e. no. of shares x share price.
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Step 2
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Calculate synergy effects; this generally involves future cash flows and discounting.
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Step 3
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Add step 1 and step 2 to give total market value for both companies.
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Step 4
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Establish the new number of shares that will exist after the merger.
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Step 5
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Calculate new share price step 3 / step 4.
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