Strategic Acquisitions Involving Common Stock Surviving firm EPs will increase any time the P/E ratio aid ?for a firm is less than the pre-merger P/E ratio of the firm doing the acquiring. [Note: P/E ratio Raid ?for Company B is $35/$2.50 14 versus pre merger P/E ratio of 16 for Company A ] 23-11
23-11 Strategic Acquisitions Involving Common Stock Surviving firm EPS will increase any time the P/E ratio 損aid?for a firm is less than the pre-merger P/E ratio of the firm doing the acquiring. [Note: P/E ratio 損aid?for Company B is $35/$2.50 = 14 versus premerger P/E ratio of 16 for Company A.]
Strategic Acquisitions Involving Common Stock Example - Company B has agreed on an offer of $45 in common stock of Company A. Surviving Company A Total earnings $25,000,000 Shares outstanding 6,406,250 Earnings per share $390 Exchange ratio=$45/$64 = 703125 New shares from exchange = 703125 X 2,000,000 =1406250 23-12
23-12 Strategic Acquisitions Involving Common Stock Example -- Company B has agreed on an offer of $45 in common stock of Company A. Total earnings $25,000,000 Shares outstanding* 6,406,250 Earnings per share $3.90 Surviving Company A Exchange ratio = $45 / $64 = .703125 * New shares from exchange = .703125 x 2,000,000 = 1,406,250
Strategic Acquisitions Involving Common Stock The shareholders of company a will experience a decrease in earnings per share because of the acquisition [$3.90 post merger EPS versus $4.00 pre-merger EPS The shareholders of company B will experlence an Increase In earnings per share because of the acquisition. [-703125X $4.10=$2.88 post-merger EPS versus $2.50 pre-merger EPS] 23-13
23-13 Strategic Acquisitions Involving Common Stock The shareholders of Company A will experience a decrease in earnings per share because of the acquisition. [$3.90 postmerger EPS versus $4.00 pre-merger EPS] The shareholders of Company B will experience an increase in earnings per share because of the acquisition. [.703125 x $4.10 = $2.88 post-merger EPS versus $2.50 pre-merger EPS]
Strategic Acquisitions Involving Common Stock Surviving firm EPS will decrease any time the P/E ratio Raid?for a firm is greater than the pre-merger P/E ratio of the firm doing the acquiring. [Note: P/e ratio Raid? for Company B is $45/$2.50 18 versus pre merger P/E ratio of 16 for Company A ] 23-14
23-14 Strategic Acquisitions Involving Common Stock Surviving firm EPS will decrease any time the P/E ratio 損aid?for a firm is greater than the pre-merger P/E ratio of the firm doing the acquiring. [Note: P/E ratio 損aid?for Company B is $45/$2.50 = 18 versus premerger P/E ratio of 16 for Company A.]
What About Earnings Per Share(EPS)? Merger decisions should not be made With the without considering merger the long-term consequences n品u Equal The possibility of future earnings growth i Without the may outweigh the merger immediate dilution of earnings. Time in the Future(years) L Initially, EPS is less with the merger 23-15 L Eventually, EPS is greater with the merger
23-15 What About Earnings Per Share (EPS)? Merger decisions should not be made without considering the long-term consequences. The possibility of future earnings growth may outweigh the immediate dilution of earnings. With the merger Without the merger Time in the Future (years) Expected EPS ($) Initially, EPS is less with the merger. Eventually, EPS is greater with the merger. Equal