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Appendix (1) 1- Asset Valuation Number of shares (including convertible bonds) when the takeover took place = 103,89 m shares. (1.87bn /18 = 103.89 m shares). Number of shares in (2009) = 13,801,000 / £0.15 = 92 million shares. Assumption: figures stated in the Dana’s balance sheet are fair valued and it represents the market replacement value for the assets. |Index |Value | |Fixed Assets |1,158,737,000 | |Current Assets |199,268,000 | |Less Current liabilities |(116,925,000) | |Less Long-term liabilities |(583,972,000) | |Net Assets |657,108,000 | Net Assets The minimum price/share = -------------------------- Outstanding shares = 657,1m / 103.89 m = £6.325/share. Net Assets The minimum price/share = -------------------------- Outstanding shares = 657,1m / 92m = £7.141/share. 2- P/E Ratio The P/E ratio for similar companies in the UK is as follows:- Tata Power Company Limited PLC : 12.62 Royal Dutch Shell PLC : 10.57 Statoil ASA(ADR) PLC : 12.85 Average of P/E ratio for the three companies is calculated as follows: 12.62 + 10.57 + 12.85 = ---------------------------- 3 = 12 The average of the previous three companies will not be modified by (50-60) % as all of them are quoted PLC companies. The profit after tax and interest but before dividends in 2009 for the acquired company (Dana British Petroleum) equals: £22,574,000 Price = 12 X 22,574,000 = £270,888,000 The minimum price/share = 270,888,000 ---------------- 103,890,000 = £2.60 The minimum price/share = 270,888,000 ---------------- 92,000,000 = £2.94 Dividends flow “The Group profit for the year amounted to £22,574,000 (2008: £96,235,000). The Directors do not recommend the payment of a dividend” (Dana annual report, 2009). As there are no dividends paid for Dana’s shareholders, the researcher is going to assume that Earnings per share (EPS) will be distributed on Dana’s shareholders instead of dividends. Dana’s EPS for the last 5 years are: |Index |EPS | |2009 |25.19 p | |2008 |111.13 p | |2007 |75.55 P | |2006 |48.24 p | |2005 |80.1 p | The researcher assumes that number of shares was CONSTANT, and the Cost of equity is 16 % (1+g) 4 = (25.19/80.1) 1 + g = 0.75 G = -0.25 Dₒ (1 + g) Pₒ = -------------------- Kₑ - g 25.19 (1-.025) = ------------------- 16 – (-0.25) = (18.9 / 16.25) = £1.16 Minimum price / share = £1.16