(Stock for Stock Merger) A Corporation is considering the acquisition of X Corpo

Question

(Stock for Stock Merger) A Corporation is considering the acquisition of X Corporation. Each corporation has the following data: Existing Income Number of Shares A Corporation $4,200,000 621,000 X Corporation $2,200,000 365,000 Synergistic additional benefits from the combination are $1,200,000. What is the minimum exchange ratio is necessary to keep the X shareholders whole in terms of earnings per share? What is the maximum exchange ratio would the A Corporation shareholder accept in taking over X Corporation and remain whole in terms of earnings per share? (note you will need to use the formulas in the book to solve this)

Explanation / Answer

Company A Company X Income 4200000 2200000 No of Shares 621000 365000 EPS 6.76 6.03 EPS Post merger 8.70 6.03 Desired Exchange Ratio A) Exchange Ratio would be 6.03 of Company A in exchange of 8.70 of Company X Shares to be issued to Company X 253000 Total No of Shares 874000 B) Post merger Income 7600000 Post merger EPS of Company A 6.76 No of Shares required 1123714 Already had 621000 Reuired to be Issued 502714 So Exchange ratio is 502714: 365000

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