Problem: Acquiring Company is considering the acquisition of Target Company in a share-for-share transaction in which Target Company would receive $50.00 for each share of its common stock. The Acquiring Company does not expect any change in its P/E multiple after the merger.
Acquiring Co. Target Co.
Earnings available for common stock $150,000 $30,000
Number of shares of common stock outstanding 60,000 20,000
Market price per share $60.00 $40.00
Using the information provided above on these two firms and showing your work,
Calculate the following:
1) Purchase price premium
2) Postmerger EPS of the combined companies
3) Postmerger share price