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Buyout Stock Exchange Analysis

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Buyout Stock Exchange Analysis Powered By Docstoc
					                             EFFECT OF ACQUISITION INVOLVING STOCK EXCHANGE
                                                  Takeover         Target
                                                 Company A       Company B
     Earnings Available For Common Stock         $100,000         $250,000

     Number of Common Shares Outstanding          125,000          20,000

             Market Price Per Share               $80.00           $75.00

              Earnings Per Share                   $0.80           $12.50
           Price/Earnings Ratio (P/E)              100.0             6.0
       Assumed Rate of Earnings Growth             3.00%            7.00%


Assumed Stock Price Premium Paid By A to B (%)    46.67%        Excess Value Over Existing B Share Price
     Assumed Ratio of Exchange (e.g., 1.35)        1.375
        Assumed P/E Ratio of New Firm              21.00
  Effects of Combination of 2 Firms - EPS No
                                                   $2.41
    Change in Combined Number of Shares


                                                                                 New Equiv- alent
Assumed Ratio of Exchange Number of A Shares New EPS A Share-   Stock Price of                         Earnings
                                                                                  EPS B Share-
              For Each B Share                   holders          New Firm                             From A
                                                                                     holders
                     1.225                         $2.48           $52.04             $3.41                $103,000
                     1.275                         $2.46           $51.70             $3.38                $103,000
                     1.325                         $2.45           $51.36             $3.36                $103,000
                     1.375                         $2.43           $51.02             $3.34                $103,000
                     1.425                         $2.41           $50.69             $3.32                $103,000
                     1.475                         $2.40           $50.36             $3.30                $103,000
                     1.525                         $2.38           $50.04             $3.28                $103,000
                     1.575                         $2.37           $49.72             $3.26                $103,000


PERFORMANCE OF NEW FIRM IN FUTURE YEARS

                                                 YEAR +1          YEAR +2            YEAR +3          YEAR +4
          New Firm's Total Earnings              $370,500         $392,315           $415,533          $440,250
            New Firm's Stock Price                $51.02           $54.02             $57.22               $60.62
         EPS Former A Shareholders                 $2.43            $2.57              $2.72               $2.89
    EPS Equivalent Former B Shareholders           $3.34            $3.54              $3.75               $3.97
K EXCHANGE




                   Total       Total Number Total Number
     Earnings
                 Earnings       of Shares A    of Shares B
     From B
                 New Firm      Share- holders Share- holders
      $267,500     $370,500            125,000        24,500
      $267,500     $370,500            125,000        25,500
      $267,500     $370,500            125,000        26,500
      $267,500     $370,500            125,000        27,500
      $267,500     $370,500            125,000        28,500
      $267,500     $370,500            125,000        29,500
      $267,500     $370,500            125,000        30,500
      $267,500     $370,500            125,000        31,500



                               Change After 5
                 Initial EPS
     YEAR +5                      Years
     $466,565
      $64.25
      $3.06        $0.80           282%
      $4.21       $12.50           -66%

				
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Description: Analyses the effects of combining two companies.