Schweser Mock - Vol.1 Exam 2 AM - Q's 9 & 10‏ - Cash/Stock Acquisition

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stevoDE

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Solution:

Value of Fedora and Ubunta post cash acquisition (given) = $135 million.
Value of Fedora and Ubunta post stock acquisition = $135 million + $90 million cash = $225 million.
Number of shares outstanding post stock acquisition = 5 + 3 = 8 million.
Value of shares received based on their likely post-acquisition price = [(225m) / 8m] × 3m = $84,375,000.
Gain to Debian’s shareholders is therefore $84,375,000 - $85,000,000 = -$625,000
The vignette states that “Fedora has offered to pay $90 million cash to buy Ubuntu” then later goes on to state “Alternatively, Fedora is prepared to buy Ubuntu by directly issuing stock” (paraphrasing there).
My question is, why does the solution use the post cash acquisition value of $135m as the starting point when considering the economic impact of the stock acquisition? The stock acquisition is an alternative to the cash acquisition but the solution seems to factor in both?
Thanks in advance
 
What a silly question with various Linux distributions as the companies….
 
I know for this one from Schweser 1 round Mocks. Even not sure if I answered correct.
Anyway, there cannot be 2 post acquisition values. There are new PPS after acquistion or total MCap of new company as stated in point one.
Seems you double counted, exclude cash from post acquistion value.
 
Flashback wrote:
I know for this one from Schweser 1 round Mocks. Even not sure if I answered correct.
Anyway, there cannot be 2 post acquisition values. There are new PPS after acquistion or total MCap of new company as stated in point one.
Seems you double counted, exclude cash from post acquistion value.
Click to expand...
The solution above is taken directly from the book. When calculating what the new total value is after the stock acquistion, they include the $90m cash offered up for the cash acquisition in the starting figure of $135m then add another $90m to arrive at $225m post stock acquisition. That’s what I don’t understand.
 
Ignore me. I understand what’s going on now.
 
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