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QUESTION 2 Lexis Limited, a software development company is contemplating the acquisition of Nexis Limited by means of a share issue

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QUESTION 2
Lexis Limited, a software development company is contemplating the acquisition of Nexis Limited by means of a share
issue. The combination of the two firms' operations will result in economies of scale and the additional value generated is
estimated to be R72 000 000. It was agreed that the purchase consideration for the Nexis Limited acquisition should be
based on an exchange of 1.2 shares of Lexis Limited for each share of Nexis Limited.
Key acquisition data is detailed below:
Company No. of shares Price per share Earnings after Tax
Lexis Limited 18 800 000 R32 R26 000 000
Nexis Limited 13 200 000 R28 R19 000 000
2.1 Calculate the combined value of the proposed acquisition. (3 marks)
2.2 Calculate the total number of shares in the proposed acquisition. (2 marks)
2.3 Determine the proposed post-acquisition market price per share. (2 decimal places) (2 marks)
2.4 Will the shareholders of Lexis Limited be happy with this price? Why? (2 marks)
2.5 How much will the shareholders of Nexis Limited gain or lose on a per share basis. (2 marks)
2.6 Determine the purchase price of Nexis Limited that is implied by the 1.2 exchange ratio. (3 marks)
2.7 Calculate the net present value of the proposed acquisition. (4 marks)
2.8 Calculate the proposed acquisition premium. (3 marks)
Compute the earnings per share for Lexis Limited before and after the proposed acquisition.
Assume that the earnings after tax after the proposed acquisition is R45 000 000.