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 necessary to keep the X shareholders whole in terms of earnings per share?
What maximum exchange ratio would the A Corporation shareholder accept in taking over X Corporation and remain whole in terms of earnings per share?