The following data are pertinent for companies A and B.
Present Earnings Shs 20 million Shs 4 million
No of shares 10 million 1 million
Price/earning ratio 18 10
a. If the two companies were to merge and the exchange ratio were one share of Company A for each share of Company B, what would be the initial impact on earnings per share of the two companies? what is the market value exchange ratio? Is the merger likely to take place?
b. If the exchange ratio were two shares of Company A for each share of Company B what would happen with respect to the above?
c. If the exchange ratio were 1.5 shares of Company A for each share of Company B, what would happen?
d. What exchange ratio would you recommend?
a. "A well planned merger can result to both companies benefiting". Discuss.
b. "Synergy is the necessary mainspring of a successful merger"
i. What is synergy?
ii. Discuss the above statement.
X Ltd intends to take-over Y Ltd by offering two of its share for every five shares in Y Company Ltd. Relevant financial data is as follows:
X Ltd Y Ltd
EPS Shs 2 Shs 2
Market price per share Shs 100 Shs 40
Price earnings ratio 50 20
No. of shares 100,000 250,000
Total earnings Shs 200,000 Shs 500,000
Total market value Shs 10,000,000 Shs 10,000,000
a. Compute the combined EPS & MPS
b. Has wealth been created for shareholders?