- Company Y Has 4 Million Shares In Issue And Company Z 10 Million On Day 1 The Market Value Per Share For Company Y Is 1 (180.99 KiB) Viewed 81 times
Company Y has 4 million shares in issue and
Company Z 10 million. On day 1 the market value per share for
Company Y is £3.50, and for
Company Z is £5.00. On day 2, the management of
Company Z decides at a private meeting, to make a cash takeover bid for
Company Y at a price of £5.00 per share. The takeover will produce large operating savings with a value of £8 million. On day 4,
Company Z publicly announces an unconditional offer to purchase all the shares of
Company Y at a price of £5.00 per share with settlement on day 20. Details of the large savings are not announced and are not public knowledge. On day 12,
Company Z announces details of the savings, which will be derived from the takeover. Required: a. Ignoring tax and the time-value of money between days 1 and 20, and assuming the details given are the only factors having an impact on the share prices of
Company Y and Z, determine the day 2, day 4, and day 12 share prices of
Company Y and
Company Z if the market is: 1. Semi-Strong Efficient. 2. Strong Form Efficient. In each of the following circumstances: i. ii. The purchase consideration is cash as specified above, and The purchase consideration, decided upon on day 2, and publicly announced on day 4, is one newly issued share of
Company Z for each share of
Company Y. (15 marks) b. Academics have argued that market efficiency can be defined using three differing strengths; weak form, semi-strong form, and strong form. Critically evaluate the three differing strengths of market efficiency ensuring the response is supported with relevant academic evidence.