On 1 January:

   • Company X has a value of $50 million

   • Company Y has a value of $20 million

   • Both companies are wholly equity financed

Company X plans to take over Company Y by means of a share exchange. Following the acquisition the post-tax cashflow of Company X for the foreseeable future is estimated to be $8 million each year. The post-acquisition cost of equity is expected to be 10%.

What is the best estimate of the value of the synergy that would arise from the acquisition?