Question: Evaluate the impact of the following proposed mergers upon the post merger earnings per share of the combined organization:
a. An acquiring bank reports that the current price of its stock is $20 per share and the bank earns $6 per share for its stockholders; the acquired bank's stock is selling for $17 per share and that bank is earning $5 per share. The acquiring institution has issued 200,000 shares of common stock, whereas the acquired institution has 100,000 shares of stock outstanding. Stock will be exchanged in this merger transaction exactly at its current market price. Most recently, the acquiring bank turned in net earnings of $1,200,000 and the acquired banking firm reported net earnings of $300,000. Following this merger, combined earnings of $1,600,000 are expected.
b. The financial firm to be acquired is currently earning $14 per share, and its acquirer is reporting earnings of $12 per share. The acquired firm's stock is trading in today's market at $27 per share, while the acquiring firm's stock exchanges today for $24 per share. The acquired institution has 75,000 shares outstanding; the acquiring institution, on the other hand, has issued 80,000 shares of common stock. The combined organization is expected to earn $900,000; before the merger, the acquired firm posted net earnings of $400,000 and the acquiring firm tallied net earnings of $600,000.