A merger between Minnie Corporation and Mickey Corporation is under consideration. The financial information for these...

A merger between Minnie Corporation and Mickey Corporation is under consideration. The financial information for these firms is as follows: Minnie Corporation Mickey Corporation Total earnings $2,025,000 $4,050,000 Number of shares of stock outstanding 270,000 1,080,000 Earnings per share $7.50 $4 Price-earnings ratio (P/E) 10X 20X Market price per share $75 $75 a. Assume a 100 percent premium will be paid and there is a 32 percent synergistic benefit to total earnings from the merger. What is the change in Mickey Corporation's earnings if it merges with Minnie Corporation? (Round the final answer to 2 decimal places.) Change in earnings per share post merge

Solutions

Expert Solution

The information available is tabulated below:

Particulars	Minnie Corporation	Mickey Corporation
Toal Earnings (A)	$2,025,000	$4,050,000
No. of Outstanding shares (B)	270,000	1,080,000
EPS (A/B)	$7.5	$3.75
Price Earning's ratio	10	20
Market price per share	$75	$75

Now the swap ratio can be based on either on (A) EPS or (B) MPS

Let first take as per EPS, swap ratio = 7.5:3.75 = 2:1

i.e. Shareholders of Minnie Corporation gets 2 share of the merged entity for every 1 share held and Shareholders of Mickey Corporation gets 1 share of the merged entity for every 1 share held

Therefore, total no. of shares = 540,000 + 1,080,000 = 1,620,000

Total earnings of the merged entity (after synergy of 32%) = 132% of (($2,025,000 + $4,050,000) = $8,019,000

Therefore, earnings of Mickey Corporation post merger = 8019000/1620000*1080000 = $5,346,000 and change in earnings = $1,296,000

Also for Mickey corporation EPS pre merger = $3.75 and EPS post meger = $5, there is a change of $1.25 per share

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Mickey Mouse and Minnie Mouse compete on a skating rink. Mickey has the mass m =...

Mickey Mouse and Minnie Mouse compete on a skating rink. Mickey has the mass m = 30kg, and skates to the east with the directional velocity v = 5m / s. Minnie has a mass of m = 20 kg and is firing straight into Micky's lap. In the collision, they embrace and travel both to the east, at a velocity of v = 1m / s. What was the speed of the Minnie Mouses direction for the collision?

1A) Mickey and Minnie just bought a zero coupon bond for $403.26, but they cannot recall...

1A) Mickey and Minnie just bought a zero coupon bond for $403.26, but they cannot recall when it matures. The yield to maturity equals 7.2%. Can you help Mickey and Minnie? The bond's face value is $1000. (Assume annual discounting) (Enter your answer in years and round to 2 decimal places.) 1B) Compute the current yield on a bond with a yield to maturity of 11.2%, a par value of $1000, a coupon rate of 5.9% paid semi-annually, a remaining...

On Jan 1, 2017, Mickey Inc enters into a 7 year, non cancellable lease with Minnie...

On Jan 1, 2017, Mickey Inc enters into a 7 year, non cancellable lease with Minnie Ltd for machinery having an estimated useful life of 9 years, and a fair value of $4,300,000. Minnie's implicit rate is 6%. Mickey using the straight-line depreciation method to depreciate assets. Mickey will make annual lease payments on Jan. 1 of each year. The lease includes a guarantee by Mickey Inc. that Minnie Ltd will realize $100,000 for selling the asset at the expiration...

Mickey Mouse, Minnie, Donald, and Daisy are seeking professional advice regarding whether they should organize a...

Mickey Mouse, Minnie, Donald, and Daisy are seeking professional advice regarding whether they should organize a corporation and transfer their shares of stock in several corporations to this new corporation. The shares of each company are listed on the NYSE and are readily marketable. Mickey would transfer shares in Goofy Corporation, Minnie would transfer stock in Pete Corporation, Donald would transfer stock in Pluto Corporation, and Daisy would transfer stock in several corporations. The newly formed corporation for investment purposes...

Three different plans for financing an $7,200,000 corporation are under consideration by its organizers. Under each...

Three different plans for financing an $7,200,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income: Plan 1 Plan 2 Plan 3 10% Bonds _ _ $3,600,000 Preferred 10% stock, $40 par _ $3,600,000 1,800,000 Common stock, $7.2 par $7,200,000 3,600,000 1,800,000 Total $ 7,200,000 $ 7,200,000 $ 7,200,000 Required: 1. Determine the earnings...

Three different plans for financing an $8,400,000 corporation are under consideration by its organizers. Under each...

Three different plans for financing an $8,400,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income: Plan 1 Plan 2 Plan 3 10% bonds _ _ $4,200,000 Preferred 5% stock, $80 par _ $4,200,000 2,100,000 Common stock, $8.4 par $8,400,000 4,200,000 2,100,000 Total $ 8,400,000 $ 8,400,000 $ 8,400,000 Required: 1. Determine the earnings...

Three different plans for financing a $6,200,000 corporation are under consideration by its organizers. Under each...

Three different plans for financing a $6,200,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income. Plan 1 Plan 2 Plan 3 10% bonds _ _ $3,100,000 Preferred 10% stock, $40 par _ $3,100,000 1,550,000 Common stock, $6.2 par $6,200,000 3,100,000 1,550,000 Total $ 6,200,000 $ 6,200,000 $ 6,200,000 Required: 1. Determine for each...

Friedman Manufacturing, Inc. has prepared the following information regarding two investments under consideration.

Friedman Manufacturing, Inc. has prepared the following information regarding two investments under consideration. Which investment is better, based on risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Return Probability Return .20 12% .10 4% .50 18% .30 6% .30 27% .40 10% .20 15% “ More can be said about risk, especially as to its nature, when we own more than one asset in our investment portfolio.” Define risk...

Friedman Manufacturing, Inc. has prepared the following information regarding two investments under consideration. Which investment is...

MERGER ANALYSIS Apilado Appliance Corporation is considering a merger with the Vaccaro Vacuum Company. Vaccaro is...

MERGER ANALYSIS Apilado Appliance Corporation is considering a merger with the Vaccaro Vacuum Company. Vaccaro is a publicly traded company, and its current beta is 1.30. Vaccaro has been barely profitable, so it has paid an average of only 20% in taxes during the last several years. In addition, it uses little debt, having a debt ratio of just 25%. If the acquisition were made, Apilado would operate Vaccaro as a separate, wholly owned subsidiary. Apilado would pay taxes on...

Subjects