What theoretical share price share for share exchange, Financial Management

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What theoretical share price share for share exchange

Establish what theoretical share price may be after the merger in a share for share exchange incorporating the effects of synergy. Adopt the 5 steps listed below:

Step 1	Calculate market values of both the companies before the merger i.e. no. of shares x share price.
Step 2	Calculate synergy effects; this generally involves future cash flows and discounting.
Step 3	Add step 1 and step 2 to give total market value for both companies.
Step 4	Establish the new number of shares that will exist after the merger.
Step 5	Calculate new share price step 3 / step 4.

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