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C.Overpayment in Acquisitions There is substantial evidence that acquirers overpay for target firms.it is a Greek word that denotes pride which ultimately becomes the cause of ruin. This overpayment is attributed to: A. Hubris. Managerial self interest.e. i. Over estimation of synergies particularly when many firms pursue one target an acquirer may overbid and receive what is called winners curse . an acquisition is made to expand the domain of managers B.
we can compute the per share consideration of the deal .Purchase Price Allocation If we assume that the sale will get closed in December 2010 (Piramal has announced that the sale is likely to close in second half on 2010) and rupee dollar parity will be around INR 48/USD over the next four years and that Piramal s cost of equity is 19%.
12 0.5 3.20 0.19 Expected date of inflow 31-dec-2010 31-dec-2011 31-dec-2012 31-dec-2013 31-dec-2014 Amount in billions USD 2.43 10.Valuing sale price per share Cost of equity 0.79 12.76 19.72 Number of shares outstanding (in billions) Outstanding stock options (in billions) Sale price per share (diluted) 0.5 2.78 139.28 14.20 19.44 8.20 19.40 INR 101.5 1.001 0.210 665.20 19.40 0.58 Time in year Present value .5 93.209 0.40 0.40 0.5 4.