Stock Or Cash A Financial Perspective All Stock

• Slides: 14

Stock Or Cash -- A Financial Perspective All Stock Deal A Plans to Acquire T in a Stock-for. Stock Deal With T Receiving \$84. 30 for Each Share of Its Common Stock. A Expects No Change to Its P/E Multiple Post-closing and Assumes No Earnings Growth Due to Synergy.

Pre Deal Facts Company A Company T Net Earnings Available For Common \$281, 500 # of Shares Outstanding 112, 000 Market Price Per Share \$56. 25 \$62, 500 18, 750 \$62. 50

Accretion/Dilution Analysis • Purchase Price Premium is 35% = \$84. 30 (A’s offer price)/\$62. 50 (T’s pre deal market price.

Accretion/Dilution Analysis • Purchase Price Premium is 35% = \$84. 30 (A’s offer price)/\$62. 50 (T’s pre deal market price. • Exchange Ratio is 1. 5 = \$84. 30 (A’s offer price)/\$56. 25(A’s pre deal market price).

Accretion/Dilution Analysis • Purchase Price Premium is 35% = \$84. 30 (A’s offer price)/\$62. 50 (T’s pre deal market price. • Exchange Ratio is 1. 5 = \$84. 30 (A’s offer price)/\$56. 25(A’s pre deal market price). • A will issue 28, 125 new shares = I. 5 x 18, 750 T shares outstanding.

Accretion/Dilution Analysis • Purchase Price Premium is 35% = \$84. 30 (A’s offer price)/\$62. 50 (T’s pre deal market price. • Exchange Ratio is 1. 5 = \$84. 30 (A’s offer price)/\$56. 25(A’s pre deal market price). • A will issue 28, 125 new shares =I. 5 x 18, 750 T shares outstanding. • Total shares of “NEWCO” = 140, 125 consisting of 112, 000 (A’s pre deal shares outstanding) + 28, 125 new shares issued.

Accretion/Dilution Analysis • Purchase Price Premium is 35% = \$84. 30 (A’s offer price)/\$62. 50 (T’s pre deal market price. • Exchange Ratio is 1. 5 = \$84. 30 (A’s offer price)/\$56. 25(A’s pre deal market price). • A will issue 28, 125 new shares =I. 5 x 18, 750 T shares outstanding. • Total shares of “NEWCO” = 140, 125 consisting of 112, 000 (A’s pre deal shares outstanding) + 28, 125 new shares issued. • NEWCO’s expected EPS is \$2. 46 consisting of \$281, 500 (A) + \$62, 500 (B) = \$344, 000/140, 125 NEWCO shares outstanding.

Accretion/Dilution Analysis • A’s pre merger EPS of \$2. 51 resulted in a pre merger P/E of 22. 4 (\$56. 25 market price)/\$2. 51 EPS).

Accretion/Dilution Analysis • A’s pre merger EPS of \$2. 51 resulted in a pre merger P/E of 22. 4 (\$56. 25 market price)/\$2. 51 EPS). • NEWCO’s expected share price of \$55. 10 is calculated from its expected EPS of \$2. 46 x its P/E multiple of 22. 4.

Accretion/Dilution Analysis • A’s pre merger EPS of \$2. 51 resulted in a pre merger P/E of 22. 4 (\$56. 25 market price)/\$2. 51 EPS). • NEWCO’s expected share price of \$55. 10 is calculated from its expected EPS of \$2. 46 x its P/E multiple of 22. 4. • This deal likely will result in dilution of \$1. 15 per share and A’s shareholders owing 79. 9% of NEWCO with T’s shareholders owning 20. 1%.

All Cash Deal T Agrees to an All Cash Purchase of 100% of Its Outstanding Common Stock for \$84. 30/share With the Deal Financed by Excess Cash Balances on Hand.

Accretion/Dilution Analysis • NEWCO’s EPS = \$281, 500 (A) + \$62, 500 (B) = \$344, 000/112, 000 AT shares outstanding = \$3. 07.

Accretion/Dilution Analysis • NEWCO’s EPS = \$281, 500 (A) + \$62, 500 (B) = \$344, 000/112, 000 AT shares outstanding = \$3. 07. • NEWCO’s expected share price of \$68. 77 is calculated from its expected EPS of \$3. 07 x its P/E multiple of 22. 4.

Accretion/Dilution Analysis • AT’s EPS = \$281, 500 (A) + \$62, 500 (B) = \$344, 000/112, 000 AT shares outstanding = \$3. 07. • AT’s expected share price of \$68. 77 is calculated from its expected EPS of \$3. 07 x its P/E multiple of 22. 4. • This deal likely will result in accretion of \$12. 52 per share and A’s shareholders own 100% of NEWCO. Source: Mergers, Acquisitions, and other Restructuring Activities by Donald De. Pamphlis, Academic Press, 2001.