How to Price a Share for Acquisition

Although take‐overs are becoming important means of diversification, there is no established technique which incorporates uncertainties involved and gives a range of values of a target firm which can form the basis for offering a price.

Using a model of the firm's cash flows after acquisition, Malay Kanti Roy simulates the likely cash flow streams from the acquisition of India Cements for various values of the key variables such as growth rate and earnings before interest and taxes. He shows how such models and simulation analyses can help negotiators set upper and lower limits for a take-over bid.