The HSBC holdings/Midland bank takeover part two: Financial offer, valuation and stock market reaction

Abstract

In Part Two of this Case Study, Paul Stonham focuses on HSBC Holdings' acquisition offer for Midland Bank. It involves the valuation of HSBC's and Lloyds Bank's offers and theoretical questions of the valuation of target companies' shares under a paper exchange. Valuation is made of the successfully-achieved HSBC/Midland enlarged group and estimates made of shareholder value before and after the takeover as well as for Lloyds Bank pre- and post-theoretical takeover. Dilution of earnings and transfer of shareholder value as a result of the takeover are interesting aspects and an evaluation is made. Finally, the reaction of the stock market to the takeover terms is interesting and provides the basis of comparison with similar large-scale acquisitions and their effect on stock market behaviour.