Nora Fashion Corp. is thinking to acquire Sally Shoes Corp. The presence of mark

Question

Nora Fashion Corp. is thinking to acquire Sally Shoes Corp. The presence of marketing synergies will produce an estimated additional value of $9,259,259. Nora Fashion has 2,500,000 shares of equity outstanding with a market price of $6 each, while a share of stock of Sally Shoes has a price of $8 and an overall equity value of $9,000,000. The acquisition will be paid with new shares issued by Nora Fashion and distributed to Sally Shoes shareholders. The gain from the synergies will be shared equally between the shareholders of two companies. How many shares of Nora Fashion will be distributed for one share of Sally Shoes? Show your working

Explanation / Answer

Details Amt $/Qty Equity Value of Sally Shoes Corp           9,000,000 Estimated additional value           9,259,259 50% of additional value           4,629,630 Purchase consideration        13,629,630 Market Price /share of Nora Fashion Corp                           6 No of Nora Fashion shares to be issued to Sally Corp           2,271,605 Market Price /share of Sally Corp                           8 No of shares outstanding for Sally Corp           1,125,000 No Of Nora Fashion share issued to Sally Corp           2,271,605 No Of Nora shares to be distributed per share of Sally Corp                     2.02

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