ASSIGNMENT: MERGER
1.
ABC corporation has announced plans to acquire XYZ corporation. ABC is trading for $45 per share and
XYZ is trading for $25 per share, with a premerger value for XYZ of $3 billion dollars. If the projected
synergies from the merger are $750 million, what is the maximum exchange ratio that ABC could offer in a
stock swap and still generate a positive NPV?
2.
XYZ has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. XYZ
is thinking of buying ABC, which has earnings per share of $1.25, 4 million shares outstanding, and a price
per share of $15. XYZ will pay for ABC by issuing new shares. There are no expected synergies from the
transaction.
If XYZ offers an exchange ratio such that, at current pre-announcement share prices for both firms, the
offer represents a 20% premium to buy ABC, then the price per share of the combined corporation after the
merger will be closest to:
3.
ABC and XYZ have entered into a stock swap merger agreement whereby ABC will pay a 30% premium
over XYZ's pre-merger price. If ABC's pre-merger price per share was $15 and XYZ's was $30, then the
exchange ratio that ABC will offer is closest to:
4.
Firm A has a value of $100 million, and B has a value of $70 million. Merging the two would allow a
cost savings with a present value of $20 million. Firm A purchases B for $75 million. What is the gain
from this merger?
5.
Companies A and B are valued as follows:
A
No. of shares
EPS
Share Price
B
2000
$10
$100
1000
$10
$50
Company A now acquires B by offering one (new) share of A for every two shares of B (that is, after the merger,
there are 2500 shares of A outstanding). If investors are aware that there are no economic gains from the merger,
what is the price-earnings ratio of A's stock after the merger?
6.
The following data on a merger is given:
Firm A
Price per share
$100
Total earnings
$500
Shares outstanding
100
Total value
$10,000
Firm B
$10
$300
40
$4,000
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.
A. Calculate the gain from the merger.
B. Calculate the NPV of the merger.
C. What will be the post-merger price per share for Firm A's stock if Firm A pays in cash?
Firm AB
$11,000
7. From the following calculate the free cash flow:
EBITDA
Depreciation Expense
Interest expense
Tax rate
Purchases of fixed asset
Change in WC
Net borrowing
Common dividends
$1000
400
150
30%
500
50
80
200