The annual report and accounts for Astra Zeneca plc and Epistem Holdings plc and other relevant financial information are available in the ‘TMA 02 Resources folder' in the Assessment and Revision Resources section on the B831 website.
(a) Calculate the following for Astra Zeneca plc and Epistem Holdings plc:
• PE ratio
Calculate the ratios using financial information at the financial year-end (Astra Zeneca plc: 31 December 2010; Epistem Holdings plc: 30 June 2010).
(b) Using your results from (a), the sector financial information provided and any other information necessary, calculate and recommend a share value that Astra Zeneca plc might offer for Epistem Holdings plc. Assume a friendly take-over, that is, the Epistem Holdings plc board are in favour of the acquisition by Astra Zeneca plc.
Explain and justify your recommended share value.
(c) Critically evaluate the use of market multiples, in company valuation, in this scenario.
Use examples, numerical or qualitative, from Astra Zeneca plc and Epistem Holdings plc to illustrate and support your discussion.
Your discussion should consider, briefly, alternative valuation approaches.
(d) Explain how Astra Zeneca plc's choice of funding the (hypothetical) acquisition will be influenced by whether the offer to Epistem
Holdings plc shareholders is in:
• cash, or
• shares, that is, Epistem Holdings plc shareholders receive one share in Astra Zeneca plc in exchange for one share held in Epistem Holdings plc.