Question 12.9: Calculate the bid premium (in percentage terms) for each of ...

Financial Management for Decision Makers

Calculate the bid premium (in percentage terms) for each of the target businesses and comment on the findings.

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The size of the bid premium for each business can be calculated as follows:

Business bid for	Value of bid per share (a)	Pre-bid price (b)	Bid premium percentage $\frac{(a) − (b)}{(b)}× 100$
Clipper Windpower	65	49.25	32.0
Intec Telecom Systems	72	56.5	27.4
Metals Exploration	13	10.25	26.8
Mount Engineering	82	77.5	5.8
NeutraHealth	6.5	5.38	20.8
Spice	70	66.5	5.3

We can see that the bid premia cover a wide range from 5.3 per cent to 32 per cent.
The current market value of the shares will normally increase following a bid and will move closer to the bid price. Occasionally, the market value of the shares may exceed the bid price, normally in anticipation of a higher offer being made.

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