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Astra Ltd acquired all 1,000,000 shares in Bolton Ltd. As part of the purchase consideration, the shareholders of Bolton Ltd were offered $2 cash for every 5 Bolton Ltd shares, plus 3 Astra Ltd shares for every 7 Bolton Ltd shares. At the date of acquisition, the share price of Bolton Ltd was $2.10.What is the amount of the purchase consideration?

Question

Astra Ltd acquired all 1,000,000 shares in Bolton Ltd. As part of the purchase consideration, the shareholders of Bolton Ltd were offered 2cashforevery5BoltonLtdshares,plus3AstraLtdsharesforevery7BoltonLtdshares.Atthedateofacquisition,thesharepriceofBoltonLtdwas2 cash for every 5 Bolton Ltd shares, plus 3 Astra Ltd shares for every 7 Bolton Ltd shares. At the date of acquisition, the share price of Bolton Ltd was 2.10.What is the amount of the purchase consideration?

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Solution

To calculate the purchase consideration, we need to consider both the cash and the shares offered to the shareholders of Bolton Ltd.

  1. Cash Consideration: The shareholders of Bolton Ltd were offered 2forevery5shares.So,for1,000,000shares,thecashconsiderationwouldbe:(1,000,000shares/5)∗2 for every 5 shares. So, for 1,000,000 shares, the cash consideration would be: (1,000,000 shares / 5) * 2 = $400,000

  2. Share Consideration: The shareholders were also offered 3 Astra Ltd shares for every 7 Bolton Ltd shares. However, we don't know the share price of Astra Ltd, so we can't calculate the value of this part of the consideration directly. But we do know that the share price of Bolton Ltd was 2.10atthedateofacquisition.So,wecancalculatetheequivalentvalueoftheAstraLtdsharesintermsofBoltonLtdshares:(1,000,000shares/7)∗3=428,571.43sharesThen,wemultiplythisbythesharepriceofBoltonLtdtogettheequivalentvalue:428,571.43shares∗2.10 at the date of acquisition. So, we can calculate the equivalent value of the Astra Ltd shares in terms of Bolton Ltd shares: (1,000,000 shares / 7) * 3 = 428,571.43 shares Then, we multiply this by the share price of Bolton Ltd to get the equivalent value: 428,571.43 shares * 2.10/share = $899,999.99

  3. Total Purchase Consideration: The total purchase consideration is the sum of the cash consideration and the share consideration: 400,000+400,000 + 899,999.99 = $1,299,999.99

So, the amount of the purchase consideration is approximately $1.3 million.

This problem has been solved

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