Chapter 14 • Corporate restructuring
Balance sheet as at the end of the year just ended
Thruster plc Relaxation plc
£m £m
Non-current assets 350 200
Current assets 160 90
Total assets 510 290
Equity: Ordinary shares of £0.50 each 170 90
Reserves 110 100
280 190
Long-term liabilities 180 60
Current liabilities 50 40
Total equity and liabilities 510 290
Pre-bid price/earnings ratio (P/E) 18 14Observers believe that, following the takeover, the P/E ratio of Thruster plc will be 16.
Assuming that the market value of their shareholdings is the only factor of concern,
would the shareholders of each business welcome a successful takeover?14.4 Expansion plc has consistently expanded its activities over the past decade, partly
through takeover and partly through retention of much of its operating profits. Con-
solidation plc operates in a mature, stable industry. Expansion plc is about to launch
a takeover bid for the entire equity of Consolidation plc. The offer will be that Expan-
sion plc will give one of its shares for every ten shares in Consolidation plc.
Analysts at Expansion plc believe that there are potential savings in total after-tax
administrative costs of the merged operation, relative to the existing total administrat-
ive cost of the two businesses, totalling £10 million.
Summarised financial statements for the year just ended are as follows:Income statement
Expansion plc Consolidation plc
£m £m
Turnover 940 730
Profit before tax 156 75
Taxation 52 25
Profit after tax 104 50
Dividends paid 20 40Balance sheet as at the end of the year just ended
Expansion plc Consolidation plc
£m £m
Total net assets 1,750 2,400
Equity: Ordinary shares of £0.50 each 400 1,000
Reserves 480 250
880 1,250
Long-term liabilities 870 1,150
1,750 2,400
Pre-bid price/earnings ratio (P/E) 25 10