Question

In: Finance

The acquirer has the following info: Stock price = $75, Shares outstanding = 75,000, Earnings =...

The acquirer has the following info: Stock price = $75, Shares outstanding = 75,000, Earnings = 100,000

The target has the following info: Stock price = $40, Shares outstanding = 35,000, Earnings = 50,000

Use the information above to answer questions 1-3:

1. How many shares does the acquirer have to issue to buy the target?

2. What are the new Earnings after the merger?

3. What is the new EPS after the merger?

Solutions

Expert Solution

A)Number of shares to be issued= Target market value /Market price per share of acquirer

                     = (40*35000)/ 75

                    = 1400000/75

                   = 18666.67 (rounded to 18667 shares)

B)Earnings after merger = Earnings of acquirer+Earnings of Target

                = 100000+50000

                = 150000

c)Number of shares outstanding after merger = Before merger shares outstandng of Target + New shares issued

               = 75000 +18667

               = 93667

New EPS = Earnings after merger /Number of shares outstanding after merger

            = 150000 / 93667

            = $ 1.60 per share (rounded to 2 decimal place)

jeff jeffy answered 1 year ago
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