EFFECT OF ACQUISITION INVOLVING STOCK EXCHANGE
Takeover Company A Earnings Available For Common Stock Number of Common Shares Outstanding Market Price Per Share Earnings Per Share Price/Earnings Ratio (P/E) Assumed Rate of Earnings Growth Assumed Stock Price Premium Paid By A to B (%) Assumed Ratio of Exchange (e.g., 1.35) Assumed P/E Ratio of New Firm Effects of Combination of 2 Firms - EPS No Change in Combined Number of Shares Assumed Ratio of Exchange Number of A Shares For Each B Share 1.225 1.275 1.325 1.375 1.425 1.475 1.525 1.575 Enter Data $500,000 125,000 $80.00 $4.00 20.0 3.00% Enter Data Enter Data Enter Data Enter Data Target Company B $100,000 20,000 $75.00 $5.00 15.0 7.00% Excess Value Over Existing B Share Price
Enter Data
46.67%
1.375
21.00
$4.14
New EquivNew EPS A Stock Price of alent EPS B ShareNew Firm Shareholders holders $4.16 $4.13 $4.11 $4.08 $4.05 $4.03 $4.00 $3.97 $87.37 $86.79 $86.22 $85.65 $85.09 $84.54 $84.00 $83.46 $5.72 $5.68 $5.65 $5.61 $5.57 $5.54 $5.50 $5.46
Earnings From A $515,000 $515,000 $515,000 $515,000 $515,000 $515,000 $515,000 $515,000
Earnings From B $107,000 $107,000 $107,000 $107,000 $107,000 $107,000 $107,000 $107,000
Total Earnings New Firm $622,000 $622,000 $622,000 $622,000 $622,000 $622,000 $622,000 $622,000
Total Total Number of Number Shares A of Shares ShareB Shareholders holders 125,000 24,500 125,000 25,500 125,000 26,500 125,000 27,500 125,000 28,500 125,000 29,500 125,000 30,500 125,000 31,500
PERFORMANCE OF NEW FIRM IN FUTURE YEARS YEAR +1 New Firm's Total Earnings New Firm's Stock Price EPS Former A Shareholders EPS Equivalent Former B Shareholders $622,000 $85.65 $4.08 $5.61 YEAR +2 $644,940 $88.81 $4.23 $5.82 YEAR +3 $668,868 $92.11 $4.39 $6.03 YEAR +4 $693,834 $95.54 $4.55 $6.26 YEAR +5 $719,892 $99.13 $4.72 $6.49 Initial EPS $4.00 $5.00 Change After 5 Years 18% 30%