Mergers and Acquisitions

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Presentation transcript:

Mergers and Acquisitions 25 Mergers and Acquisitions

Chapter 25 – Index of Sample Problems Slide # 02 - 03 Goodwill Slide # 04 - 13 Cash acquisition Slide # 14 - 29 Stock acquisition Slide # 30 - 40 Earnings and valuation

2: Goodwill Baker Company is buying Charlie Co. for $89 million in cash. Charlie Co. has $6.5 million in working capital and no long-term debt. The fixed assets of Charlie Co. were just appraised at $77 million. Baker Company will use the purchase accounting method to record this acquisition. What is the amount of the goodwill that will be shown on Baker Company’s books after the acquisition?

3: Goodwill

4: Cash acquisition Firm A is acquiring Firm B for $20,000 in cash. Neither firm has any debt. Firm A has 2,000 shares of stock outstanding at a price of $30 a share. Firm B has 800 shares of stock outstanding at a price of $20 a share. The incremental value of the acquisition is estimated at $7,500. What is the merger premium per share?

5: Cash acquisition

6: Cash acquisition Firm A is acquiring Firm B for $20,000 in cash. Neither firm has any debt. Firm A has 2,000 shares of stock outstanding at a price of $30 a share. Firm B has 800 shares of stock outstanding at a price of $20 a share. The incremental value of the acquisition is estimated at $7,500. What is the value of Firm B to Firm A?

7: Cash acquisition

8: Cash acquisition Firm A is acquiring Firm B for $20,000 in cash. Neither firm has any debt. Firm A has 2,000 shares of stock outstanding at a price of $30 a share. Firm B has 800 shares of stock outstanding at a price of $20 a share. The incremental value of the acquisition is estimated at $7,500. What is the net present value of acquiring Firm B given that the value of Firm B to Firm A is $23,500?

9: Cash acquisition

10: Cash acquisition Firm A is acquiring Firm B for $20,000 in cash. Neither firm has any debt. Firm A has 2,000 shares of stock outstanding at a price of $30 a share. Firm B has 800 shares of stock outstanding at a price of $20 a share. The incremental value of the acquisition is estimated at $7,500. What is the value of Firm A after the acquisition given that the net present value of the acquisition is $3,500?

11: Cash acquisition

12: Cash acquisition Firm A is acquiring Firm B for $20,000 in cash. Neither firm has any debt. Firm A has 2,000 shares of stock outstanding at a price of $30 a share. Firm B has 800 shares of stock outstanding at a price of $20 a share. The incremental value of the acquisition is estimated at $7,500. What is the price per share after the acquisition given a total firm value of $63,500?

13: Cash acquisition

14: Stock acquisition Firm Y has agreed to be acquired by Firm X for $18,000 worth of Firm X stock. Firm X has 3,000 shares of stock outstanding at a price of $25 a share. Firm Y has 1,000 shares of stock outstanding at a price of $15 per share. The incremental value of the acquisition is $5,000. What is the merger premium per share?

15: Stock acquisition

16: Stock acquisition Firm Y has agreed to be acquired by Firm X for $18,000 worth of Firm X stock. Firm X has 3,000 shares of stock outstanding at a price of $25 a share. Firm Y has 1,000 shares of stock outstanding at a price of $15 per share. The incremental value of the acquisition is $5,000. What is the value of Firm Y to Firm X?

17: Stock acquisition

18: Stock acquisition Firm Y has agreed to be acquired by Firm X for $18,000 worth of Firm X stock. Firm X has 3,000 shares of stock outstanding at a price of $25 a share. Firm Y has 1,000 shares of stock outstanding at a price of $15 per share. The incremental value of the acquisition is $5,000. What is the value of the firm after the merger?

19: Stock acquisition

20: Stock acquisition Firm Y has agreed to be acquired by Firm X for $18,000 worth of Firm X stock. Firm X has 3,000 shares of stock outstanding at a price of $25 a share. Firm Y has 1,000 shares of stock outstanding at a price of $15 per share. The incremental value of the acquisition is $5,000. How many new shares of stock will be issued to complete this acquisition?

21: Stock acquisition

22: Stock acquisition Firm Y has agreed to be acquired by Firm X for $18,000 worth of Firm X stock. Firm X has 3,000 shares of stock outstanding at a price of $25 a share. Firm Y has 1,000 shares of stock outstanding at a price of $15 per share. The incremental value of the acquisition is $5,000. What is the total number of shares in the new firm?

23: Stock acquisition

24: Stock acquisition Firm Y has agreed to be acquired by Firm X for $18,000 worth of Firm X stock. Firm X has 3,000 shares of stock outstanding at a price of $25 a share. Firm Y has 1,000 shares of stock outstanding at a price of $15 per share. The incremental value of the acquisition is $5,000. What is the value per share of Firm X after the acquisition given that the total value of the firm is $95,000 (slide # 19) and there are 3,720 shares outstanding (slide # 23)?

25: Stock acquisition

26: Stock acquisition Firm Y has agreed to be acquired by Firm X for $18,000 worth of Firm X stock. Firm X has 3,000 shares of stock outstanding at a price of $25 a share. Firm Y has 1,000 shares of stock outstanding at a price of $15 per share. The incremental value of the acquisition is $5,000. What is the actual cost of the acquisition using company stock?

27: Stock acquisition

28: Stock acquisition Firm Y has agreed to be acquired by Firm X for $18,000 worth of Firm X stock. Firm X has 3,000 shares of stock outstanding at a price of $25 a share. Firm Y has 1,000 shares of stock outstanding at a price of $15 per share. The incremental value of the acquisition is $5,000. What is the net present value of the acquisition using company stock?

29: Stock acquisition

30: Earnings and valuation Company A is planning on merging with Company B. Company A will pay B’s stockholders the current value of their stock in shares of A. The after-merger earnings will be $52,800. Currently, the values are: Company A Company B EPS $2.00 $1.60 Price $25.00 $16.00 P/E 12.5 10.0 Shares 20,000 8,000 Earnings $40,000 $12,800 Total value $500,000 $128,000

31: Earnings and valuation Company A is planning on merging with Company B. Company A will pay B’s stockholders the current value of their stock in shares of A. The after-merger earnings will be $52,800. Currently, the values are: Company A Company B EPS $2.00 $1.60 Price $25.00 $16.00 P/E 12.5 10.0 Shares 20,000 8,000 Earnings $40,000 $12,800 Total value $500,000 $128,000 How many shares of stock will be outstanding in the merged firm?

32: Earnings and valuation

33: Earnings and valuation Company A is planning on merging with Company B. Company A will pay B’s stockholders the current value of their stock in shares of A. The after-merger earnings will be $52,800. Currently, the values are: Company A Company B EPS $2.00 $1.60 Price $25.00 $16.00 P/E 12.5 10.0 Shares 20,000 8,000 Earnings $40,000 $12,800 Total value $500,000 $128,000 Shares in the new firm: 25,120 What will the earnings per share be after the merger?

34: Earnings and valuation

35: Earnings and valuation Company A is planning on merging with Company B. Company A will pay B’s stockholders the current value of their stock in shares of A. The after-merger earnings will be $52,800. Currently, the values are: Company A Company B EPS $2.00 $1.60 Price $25.00 $16.00 P/E 12.5 10.0 Shares 20,000 8,000 Earnings $40,000 $12,800 Total value $500,000 $128,000 Shares in the new firm: 25,120 Post-merger EPS $2.10 What is the value of the merged firm?

36: Earnings and valuation

37: Earnings and valuation Company A is planning on merging with Company B. Company A will pay B’s stockholders the current value of their stock in shares of A. The after-merger earnings will be $52,800. Currently, the values are: Company A Company B EPS $2.00 $1.60 Price $25.00 $16.00 P/E 12.5 10.0 Shares 20,000 8,000 Earnings $40,000 $12,800 Total value $500,000 $128,000 Shares in the new firm: 25,120 Post-merger EPS $2.10 VAB $628,000 What is the value per share of the merged firm?

38: Earnings and valuation

39: Earnings and valuation Company A is planning on merging with Company B. Company A will pay B’s stockholders the current value of their stock in shares of A. The after-merger earnings will be $52,800. Currently, the values are: Company A Company B EPS $2.00 $1.60 Price $25.00 $16.00 P/E 12.5 10.0 Shares 20,000 8,000 Earnings $40,000 $12,800 Total value $500,000 $128,000 Shares in the new firm: 25,120 Post-merger EPS $2.10 VAB $628,000 Post-merger value per share $25 What is the price-earnings (P/E) ratio of the merged firm?

40: Earnings and valuation

25 End of Chapter 25