Question

QUESTION 2

Vee Co is planning to acquire Bazlee Co with an exchange ratio to be based on market price. Below are the financial performance for both companies.

	Vee Co.	Bazlee Co
Net Income	RM36,000,000	RM6,000,000
Preferred share dividend	RM2,400,000	-
Earnings available to common shareholders	RM33,600,000	RM6,000,000
Common Share	RM80,000,000	RM20,000,000
Par Value	RM5	RM1.6
Market Price per share	RM60	RM36

Find the post-merger earnings per share and show the impact of merger in the earnings per share for both companies.

Answer 1

Calculation of total number of shares of both the companies before merger takes place

No.of shares = Common shares capital/par value

Vee Co.= 80,000,000/5 = 16,000,000

Bazlee co.=20,000,000/1.6 = 12,500,000

Exchage Ratio based on market price per share would be as follows

ER = MP of Bazlee co./MP of Vee co.

= 36/60 = 0.60

Calculation of total number of shares to be issued to Bazlee co.

=12,500,000*0.60 = 7,500,000

Post merger total number of shares would be as follows

Post merger shares = 16,000,000+7,500,000 =23,500,000

Post merger total earnings Available to common shareholders = 33,600,000+6,000,000 =39,600,000

Post merger earning per share would be as follows

PME = post merger earnings/ post merger no.of shares

= 39,600000/23,500,000 =RM 1.6851

Calculation of impact of merger on earning per share

Particulars	Vee co	Bazlee co.
Earning per share before merger	Rm 2.10	Rm 0.48
post merger earning per share	RM 1.6851	Rm 1.6851*0.60=1.0110
Gain/Loss per share	(-)Rm 0.4149	(+)Rm 0.531

Vee co.shareholder has loss of rm 0.4149 per share post merger