A major UK multinational company is planning a large acquisition. The target company is quoted on the Frankfurt Stock Exchange. Summary details of the acquisition are: Number of shares issued in target company: 200 million. In addition there are a furth

Let's break down each part of your question regarding the planned acquisition of the target company. ### a) Size of the Acquisition Facility 1. **Market Capitalization of the Target Company**: - Number of shares issued: 200 million - Market price: €20 - **Total Market Value** = 200 million shares × €20/share = €4 billion 2. **Premium on the Offer**: - Offering a premium of 10%: - Premium = 10% of €4 billion = €400 million - Total Acquisition Cost with 10% premium = €4 billion + €400 million = €4.4 billion - Offering a premium of 15%: - Premium = 15% of €4 billion = €600 million - Total Acquisition Cost with 15% premium = €4 billion + €600 million = €4.6 billion 3. **Net Debt of the Target Company**: - Net Debt = €2 billion 4. **Total Cost of Acquisition**: - For 10% premium: - Total Cost = Total Market Value + Net Debt = €4.4 billion + €2 billion = €6.4 billion - For 15% premium: - Total Cost = Total Market Value + Net Debt = €4.6 billion + €2 billion = €6.6 billion 5. **Outflow of Cash Over 18 Months**: - Cash outflow noted = UKE 300 million, which is equivalent to €300 million * (€1 / £0.70) = €428.57 million (approx). 6. **Transaction and Deal Costs**: - Deal costs are £50 million, which is €50 million * (€1 / £0.70) = €71.43 million (approx). 7. **Net Cash**: - The UK company has net cash of UKE 500 million, which is €500 million * (€1 / £0.70) = €714.29 million (approx). ### Calculating Total Acquisition Financing Needed Based on Birds Estimates: Summarizing to determine the size of the acquisition facility: 1. Total Cost with 10% premium: €6.4 billion 2. Total Cost with 15% premium: €6.6 billion 3. Total outflow over 18 months: €428.57 million 4. Deal costs: €71.43 million 5. Available cash net: €714.29 million Hence, the amount needed for acquisition funding can be calculated as follows: - 10% premium: - Total Required = €6.4 billion + €428.57 million + €71.43 million - €714.29 million - = €6.4 billion + €500 million = €6.9 billion (approx) - 15% premium: - Total Required = €6.6 billion + €428.57 million + €71.43 million - €714.29 million - = €6.6 billion + €500 million = €7.1 billion (approx) ### b) Concerns About Raising Finance 1. **Cost of Debt**: Increased debt might lead to a rise in interest rates, which could affect future profitability. 2. **Leverage Ratios**: Raising significant finance might worsen leverage ratios, which could lead to downgrading by credit rating agencies. 3. **Market Conditions**: Any economic volatility or adverse market conditions could affect the cost of financing. 4. **Regulatory Scrutiny**: Regulatory approvals can introduce uncertainty, and delay the acquisition process. 5. **Investor Sentimental Reactions**: Shareholders might respond negatively to the cash outflows or increased debt, affecting stock prices. ### c) Concerns Banks Would Have 1. **Creditworthiness of the UK Company**: Banks would assess the UK company's ability to cash flow and service existing and new debt. 2. **Valuation Risks**: The target company's market valuation and the premium offered are risky; banks would want assurance it is worth the price. 3. **Net Debt of Target**: The existing €2 billion net debt might concern banks about the overall solvency of the target. 4. **Integration Risks**: Concerns over how well the target can be integrated post-acquisition may impact performance and repayment. 5. **Economic Environment**: Banks would consider the state of the economy and how it could impact future cash flows and the ability to repay debt. ### d) Structural Issues to Consider 1. **Corporate Structure**: Understanding how both companies' corporate structures will mesh together post-acquisition. 2. **Regulatory Structure**: Navigating the regulatory approvals required in both the UK and EU may complicate the acquisition. 3. **Debt Structure**: Assessing how the existing debt of the target company will affect the overall capital structure after the acquisition. 4. **Cultural Integration**: Addressing potential cultural differences between the two companies to ensure smooth integration. 5. **Management Structure**: Determining the management and governance structure after the acquisition and how decision-making will be affected. In summary, you would need around €7.1 billion for an acquisition facility. Your concerns would center on debt management, market conditions, and regulation, while banks might worry about creditworthiness and valuation risks. Finally, structural issues would focus on corporate and management alignment post-acquisition.