Hey guys,
Let's say a public target company has 100 mm shares outstanding. Recently, an acquirer buys 80% of the equity at $1 per share. 1 day before the acquisition, the company's shares were trading at $0.8 per share.
If we were to calculate the market value for 100% of the equity after the acquisition, which option would be correct?
A) 100mm*$1 = $100 mm (Assumes the remaining 20% of the equity trades at $1 per share as well)
B) 80%100mm($1) + 20%100mm($0.8) = $96 mm (The remaining 20% does not incorporate the premium)
I believe it should be B), as the premium is only paid for 80% of the net assets. What do you think?
Thanks in advance,
Market value is determined by the remaining 20% shares that are trading.
In most jurisdictions it will be mandatory to make an offer for the remaining 20% by the way.
If you refer to the annual report of the acquiror: this is determined by accounting standards. In a private environment option A would be correct. Option B is always wrong. Option C: current market value of the 20% stake. I assume that in most jurisdictions option A is correct also for listed, but you would need to verify with an accountant.
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