Reliable Construction Ltd, a construction company, has 100,000,000 shares in issue, which are currently trading at a market price of R38 each. The company is considering the takeover of Concem Ltd, a supplier of construction materials. Concem Ltd has 20,000,000 shares in issue, trading at a market price of R3.40 each.

Concem Ltd's net cash flow after tax for the year just ended was R63,000,000. Reliable Construction Ltd anticipates that managerial and other synergies resulting from the takeover will result in Concem Ltd's net cash flow after tax increasing by 10% per year in the first three years after the takeover, and thereafter by an average rate of 6% per year for the foreseeable future. The appropriate discount rate for evaluating the cash flows of Concem Ltd for acquisition is estimated at 15%.

Required:
1.1 Using the information provided, estimate the post-acquisition value of Concem Ltd. Comment on the size of the total value gain or loss that is expected to arise as a result of the takeover.
1.2 Assume that Reliable Construction Ltd has reached an agreement to acquire Concem Ltd at a premium of 15% above its current market value and intends to finance the acquisition through the issue of 10.75% coupon bonds with a par value of R100,000 each. The bonds will mature in 15 years' time. Coupons will be paid semi-annually in arrears. The yield to maturity on similar bonds is currently 11.50%. At what value can Reliable Construction Ltd expect to issue the bonds in the market?