(Solution) - Dawn Raider Ltd has just offered one of its shares -(2025 Original AI-Free Solution)

Paper Details

Dawn Raider Ltd. has just offered one of its shares for two shares in Sleepy Giant Corp., a business in the same industry as itself. Extracts from the financial statements of each business for the year ended May 31, 2010, appear below:

If the takeover succeeds, Dawn Raider plans to combine .Sleepy Giant's marketing and distribution channels with its own, with after-tax savings of $1 million a year. In addition, it expects to be able to increase Sleepy Giant's net income by at least $5 million a year by better management. Dawn Raider's own net income is expected to be $23 million (excluding the $1 million savings already mentioned), in the year ended May 31, 2011.
One of the shareholders of Sleepy Giant has written to its chairman arguing that the bid should not be accepted. The following is an extract from his letter: "The bid considerably undervalues Sleepy Giant since it is below Sleepy Giant's net assets per share. Furthermore, if Dawn Raider continues its existing policy of paying only $0.02 a share as a dividend, Sleepy Giant's shareholders will be considerably worse off."
Required:
(a) Calculate:
(i) The total value of the bid and the bid premium
(ii) Sleepy Giant's net assets per share at May 31,2010
(iii) The dividends the holder of 100 shares in Sleepy Giant would receive in the year before and the year after the takeover
(iv) The earnings per share for Dawn Raider in the year after the takeover
(v) The share price of Dawn Raider after the takeover, assuming that it maintains its existing price/earnings ratio.
(b) Comment on:
(i) The points that the shareholder in Sleepy Giant raises in his letter
(ii) The amount of the bid consideration.