Summary
Mergers and Acquisitions Summary
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A summary of the formulas of mergers and acquisitions chapter.
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MERGERS AND ACQUISITIONS1. Share Issue – Based On Eps
No Synergy earnings
EPS t
ER =
EPS a
Acquirer shares newly issued to Target company’s shareholders = ER x Nt
Earnings m = Earnings m + Earnings t
Post-merger issued shares = Number of A shares + Newly issued A shares
Earnings m
EPS m =
Nr of shares m
Pre-merger Post-merger Difference
EPS a EPS m
EPS t EPS m x ER
2. Share Issue Based On EPS – Maximum ER
Synergies included
Maximum Exchange Ratio – Advise Acquirer
SE
EPS t+100 % ( )
Nt
ER max=
EPS a
Acquirer shares newly issued to Target company’s shareholders = ER x Nt
Earnings m = Earnings m + Earnings t + after tax synergy earnings
Post-merger issued shares = Number of A shares + Newly issued A shares (ER x Nt)
Earningsm
EPS m =
Nm
Pre-merger Post-merger Difference
EPS a EPS m
EPS t EPS m x ER
1
, 3. Share Issue: Based on EPS – Minimum ER
Synergy earnings included
Minimum ER – Advise Target
EPS t
ER min=
SE
EPS a+100 % ( )
Na
Acquirer shares newly issued to Target company’s shareholders = ER x Nt
Earnings m = Earnings m + Earnings t + after tax synergy earnings
Post-merger issued shares = Number of A shares + Newly issued A shares (ER x Nt)
Earningsm
EPS m =
Nm
Pre-merger Post-merger Difference
EPS a EPS m
EPS t EPS m x ER
Range of Possible ER Without Dilution
- If the ER is in between the minimum and maximum ER – no dilution
- ER < Minimum ER: dilution of EPS of target
- ER > Maximum ER: dilution of EPS of acquirer
4. Share Issue – Based on EPS (Apportion Synergy Earnings)
Each party receive – specific portion of synergy earnings based on earnings
SE
EPS t+%t (
)
Nt
ER=
SE
EPS a+%a ( )
Na
Acquirer shares newly issued to Target company’s shareholders = ER x Nt
2
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