Dangara plc is contemplating a takeover bid for another quoted company, Tefor plc. Both companies are in the leisure sector, operating a string of hotels, restaurants and motorway service stations....

Dangara plc is contemplating a takeover bid for another quoted company, Tefor plc. Both companies are in the leisure sector, operating a string of hotels, restaurants and motorway service stations. Tefor ’s most recent balance sheet shows the following:

£m

£m

Fixed assets (net) 800

^Cur
^r
^{ent assets}
^less

^Cur
^r
^{ent liabilities}

⁵⁰

^{Long-term debt}

(12% debenture 2002) (200)

Issued share capital (25p units) 80

^Revenue
^r
^eserves

⁴²⁰

^Revaluation
^r
^eserve

¹⁵⁰

⁶⁵⁰

650

Tefor has just reported full-year profits of £200 m after tax.

^Y
^{ou a}
^r
^{e p}
^r
^{ovided with the following further information:}

(a)

Dangara’s shareholders require a return of 14 per cent.

^(b)

^{Dangara would have to divest certain of}
^T
^efor

^{’s assets, mainly motorway service stations, to satisfy the com-}

^petition

^authorities.

^These

^assets

^have

^a

^book

^value

^of

^£100

^million,

^but

^Dangara

^thinks

^they

^could

^be

^sold

^on

^{to Lucky B}
^r
^{eak plc for}

^£200

^million.

^(c)

^T
^efor

^{’s assets we}
^r
^{e last}
^r
^{evalued in 1992, at the bottom of the p}
^r
^{operty market slump.}

^(d)

^{Dangara’s P:E ratio is 14:1,}
^T
^efor

^{’s is 10:1.}

^(e)

^T
^efor

^’s

^earnings

^have

^risen

^by

^only

²

^per

^cent

^p.a.

^on

^average

^over

^the

^p
^r
^evious

^five

^years,

^while

^Dangara’s

^{have risen by 7 per cent p.a. on average.}

^(f)

^T
^akeover

^p
^r
^emiums

^(i.e.

^amount

^paid

ⁱⁿ

^excess

^of

^p
^r
^e-bid

^market

^values)

^have

^r
^ecently

^averaged

²⁰

^per

^cent

^ac
^r
^{oss all market sectors.}

^(g)

^Many

^{‘experts’}

^believe

^that

^a

^stock

^market

^‘cor
^r
^ection’

^is

^imminent,

^due

^to

^the

^likelihood

^of

^a

^new

^govern-

^ment,

^led

^by

^Bony

^Clai
^r
^,

^being

^elected.

^The

^new

^government

^would

^possibly

^adopt

^a

^mo
^r
^e

^stringent

^policy

^on

^{competition issues.}

^(h)

^If

^a

^bid

^is

^made,

^the
^r
^e

^is

^a

^possibility

^that

^the

^Chairman

^of

^T
^efor

^will

^make

^a

^counte
^r
^-o
^f
^fer

^to

^its

^sha
^r
^eholders

^{to attempt to take the company o}
^f
^{f the Stock Exchange.}

⁽ⁱ⁾

^If

^the

^bid

^succeeds,

^T
^efor

^’s

^ex-chairman

^is

^expected

^to

^o
^f
^fer

^to

^r
^epu
^r
^chase

^a

^major

^part

^of

^the

^hotel

^portfolio.

^(j
⁾

^Muc
^h

^o
^f

^T
^efo
^r

^’
^s

^hote
^l

^asse
^t

^portfoli
^o

ⁱ
^s

^rathe
^r

^shabb
^y

^an
^d

^r
^equi
^r
^e
^s

^r
^{efurbishments}
^,

^estimate
^d

^t
^o

^cos
^t

^some

^£50

^millio
ⁿ

^p.a
^.

^fo
^r

^th
^e

^nex
^t

^fiv
^e

^years.

Required

As strategic planning analyst, you are instructed to prepare a briefing report for the main board, which:

⁽ⁱ⁾

^assesses

^the

^app
^r
^opriate

^value

^to

^place

^on

^T
^efo
^r
^,

^using

^suitable

^valuation

^techniques.

^(State

^clearly

^any

^{assumptions you make.)}

⁽ⁱⁱ⁾

^{examines the issues to be add}
^r
^{essed in deciding whether to bid for}
^T
^{efor at this junctu}
^r
^e.

May 26, 2022

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Dangara plc is contemplating a takeover bid for another quoted company, Tefor plc. Both companies are in the leisure sector, operating a string of hotels, restaurants and motorway service stations....

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