Problem
Calculating synergy
Canberra Brewing Ltd has offered $16.5 million for all of the ordinary shares in Adelaide Beer. The current market capitalisation of Adelaide Beer as an independent company is $13.4 million. Assume the required return on the acquisition is 9 per cent and the synergy from the acquisition is a perpetuity. What is the minimum annual synergy that Canberra Brewing feels it will gain from the acquisition?