Comprehensive Case of Merger & Acquisition.

T. Company is planning to acquire W. Company by Cash or Share Exchange or mix.

T. Company & W. Company are currently interested to process merging and relevant
financial information for both companies are as follows:

Contents T. Company W. Company

Total Debts 15,000,000 4,200,000
Total Shares Holders Equity 10,000,000 2,100,000
Present earnings $4,000,000 $900,000
Shares outstanding 1,000,000 300,000
Pre-Merger Price/Earnings Ratio 14X 10X
Post-Merger Price/Earnings Ratio 13X 10X
A. Calculate Share Exchange Ratio on the bases of Total Assets, Net Assets or Net
worth, EPS, Market Price & Price Earnings Ratio

B. Calculate the number of additional shares of common stock in T. Company that

will need to be issued to acquire W. Company by all the bases mentioned in Part
(A).

C. Calculate the number of additional shares of common stock in T. Company that

will need to be issued to acquire W. Company, if 20% premium given to W.
Company by all the bases mentioned in Part (A).

D. Calculate the Pre & Post merger EPS of both company’s & Also show accretion
or dilution after merger to shares holders of each company by all the bases
mentioned above.

E. Calculate the Pre & Post merger Market Price per share of both company’s &
Also show Loss or Gain per share after merger to shares holders of each company.

F. Explain in detail Synergy and highlight if any of the above base have in EPS or
Market price per share.
ASSIGNMENT NO. 03,
Comprehensive Case of Merger & Acquisition.
T. Company is planning to acquire W. Company by Cash or Share Exchange or mix.
T. Company & W. Company are currently interested to process merging and relevant
financial information for both companies are as follows.

Contents T. Company W. Company

Total Debts 18,000,000 5,040,000
Total Shares Holders Equity 12,000,000 2,520,000
Total Assets 30,000,000 7,560,000
Present earnings 4800000 1080000
Shares outstanding 1,200,000 360,000
Price/Earnings Ratio 13X 10X
A. Calculate Share Exchange Ratio on the bases of Total Assets, Net Assets or Net
worth, EPS, Market Price & Price Earnings Ratio

B. Calculate the number of additional shares of common stock in T. Company that

will need to be issued to acquire W. Company by all the bases mentioned in Part
(A).

C. Calculate the number of additional shares of common stock in T. Company that

will need to be issued to acquire W. Company, if 25% premium given to W.
Company by all the bases mentioned in Part (A).

D. Calculate the Pre & Post merger EPS of both company’s & Also show accretion
or dilution after merger to shares holders of each company by all the bases
mentioned above.
E. Calculate the Pre & Post merger Market Price per share of both company’s &
Also show Loss or Gain per share after merger to shares holders of each company.

F. Explain in detail Synergy and highlight if any of the above base have in EPS or
Market price per share.

Comprehensive Case of Merger & Acquisition.

Tariq Company is planning to acquire Waheed Company by Share Exchange. Tariq
Company & Waheed Company are currently interested to process merging and
relevant financial information for both companies are as follows:

Contents Tariq Company Waheed Company

Total Debts 15,000,000 4,200,000
Total Shares Holders Equity 10,000,000 2,100,000
Total Assets 25,000,000 6,300,000
Present earnings $4,000,000 $900,000
Shares outstanding 1,000,000 300,000
Pre-Merger Price/Earnings Ratio 14X 10X
Post-Merger Price/Earnings Ratio 13X 10X
A. Calculate Share Exchange Ratio on the bases of Market Price (Earning Price
Share * Price Earnings Ratio) and EPS ((EAT – PD) / No. of Common Shares
Outstanding.

B. Calculate the number of additional shares of common stock in Tariq Company

that will need to be issued to acquire Waheed Company by both bases mentioned in
Part (A).

C. Calculate the Pre & Post merger EPS of both company’s & Also show accretion
or dilution after merger to shares holders of each company by both bases mentioned
above.
D. Calculate the Pre & Post merger Market Price per share of both company’s &
Also show Loss or Gain per share after merger to shares holders of each company.

Solution of Comprehensive Case of Merger & Acquisition:

Contents Tariq Company Waheed Company
Present earnings $4,000,000 $900,000
Shares outstanding 1,000,000 300,000
Pre – Merger Earnings Per Share $4 $3
Pre - Merger Price/Earnings Ratio 14X 10X
Pre – Merger Market Price per share 56 30
Post-Merger Price/Earnings Ratio 13X 10X
A1. Calculate Share Exchange Ratio on Market Price base:
Share Exchange Ratio = Resources of Acquired / Resource of Acquiring
Share Exchange Ratio = MPS of Acquired / MPS of Acquiring
Share Exchange Ratio = 30 / 56 = 0.53
B1. Calculate New Shares of Tariq to Waheed Shareholders:
New Shares of Tariq to Waheed Shares holders = Waheed’s Shares * Share Exchange ratio
New Shares of Tariq to Waheed Shares holders = 300,000 * 0.53 = 159,000
C1. Calculate Post Merger Earning Per Share of Tariq Company
Post-Merger EPS = Post Merger Total Earning / Total No. of Common Shares Outstanding
Post-Merger EPS = (4000000+900000) / (1000000 + 159000) = 4.23
D1. Calculate Post Merger Market Price Per share of Tariq Company
Post-Merger MPS = Post Merger EPS * Post Merger P/E Ratio
Post-Merger MPS = 4.23 * 13 = 54.99
C1. Calculate Accretion & (Dilution) in EPS of both shareholders

Tariq Company Waheed Company

Post-Merger EPS 4.23 4.23
Pre-Merger EPS 4.00 5.66
Accretion or (Dilution) 0.23 (1.43)
Acquired for Comparison purpose: Pre – Merger EPS = Pre Actual EPS / Share Exchange Ratio
Acquired for Comparison purpose: Pre – Merger EPS = 3.00 / 0.53 = 5.66
D1. Calculate Capital Gain or (Loss) in MPS of both shareholders

Tariq Company Waheed Company

Post-Merger MPS 54.99 54.99
Pre-Merger MPS 56.00 56.60
Capital Gain or (Loss) (1.01) (1.61)
Acquired for Comparison purpose: Pre – Merger MPS = Pre Actual MPS / Share Exchange Ratio
Acquired for Comparison purpose: Pre – Merger MPS = 30.00 / 0.53 = 56.60
A2. Calculate Share Exchange Ratio on EPS basis:
Share Exchange Ratio = Resources of Acquired / Resource of Acquiring
Share Exchange Ratio = EPS of Acquired / EPS of Acquiring
Share Exchange Ratio = 3 / 4 = 0.75
B2. Calculate New Shares of Tariq to Waheed Shareholders:
New Shares of Tariq to Waheed Shares holders = Waheed’s Shares * Share Exchange ratio
New Shares of Tariq to Waheed Shares holders = 300,000 * 0.75 = 225,000
C2. Calculate Post Merger Earning Per Share of Tariq Company
Post-Merger EPS = Post Merger Total Earning / Total No. of Common Shares Outstanding
Post-Merger EPS = (4000000+900000) / (1000000 + 225000) = 4.00
D2. Calculate Post Merger Market Price Per share of Tariq Company
Post-Merger MPS = Post Merger EPS * Post Merger P/E Ratio
Post-Merger MPS = 4.00 * 13 = 52.00
C2. Calculate Accretion & (Dilution) in EPS of both shareholders

Tariq Company Waheed Company

Post-Merger EPS 4.00 4.00
Pre-Merger EPS 4.00 4.00
Accretion or (Dilution) 0.00 0.00
Acquired for Comparison purpose: Pre – Merger EPS = Pre Actual EPS / Share Exchange Ratio
Acquired for Comparison purpose: Pre – Merger EPS = 3.00 / 0.75 = 4.00
D2. Calculate Capital Gain or (Loss) in MPS of both shareholders

Tariq Company Waheed Company

Post-Merger MPS 52.00 52.00
Pre-Merger MPS 56.00 40.00
Capital Gain or (Loss) (4.00) 12.00
Acquired for Comparison purpose: Pre – Merger MPS = Pre Actual MPS / Share Exchange Ratio
Acquired for Comparison purpose: Pre – Merger MPS = 30.00 / .75 = 40.00

Comprehensive Case of Merger & Acquisition with premium.

Tariq Company is planning to acquire Waheed Company by Share Exchange. Tariq
Company & Waheed Company are currently interested to process merging and
relevant financial information for both companies are as follows:

Contents Tariq Company Waheed Company

Total Debts 15,000,000 4,200,000
Total Shares Holders Equity 10,000,000 2,100,000
Total Assets 25,000,000 6,300,000
Present earnings $4,000,000 $900,000
Shares outstanding 1,000,000 300,000
Pre-Merger Price/Earnings Ratio 14X 10X
Post-Merger Price/Earnings Ratio 13X 10X
A. Calculate Share Exchange Ratio on the bases of Market Price (Earning Price Share * Price
Earnings Ratio) and EPS ((EAT – PD) / No. of Common Shares Outstanding including 20% premium
given to Waheed Company.
B. Calculate the number of additional shares of common stock in Tariq Company that will need to
be issued to acquire Waheed Company by both bases mentioned in Part (A).
C. Calculate the Pre & Post merger EPS of both company’s & Also show accretion or dilution after
merger to shares holders of each company by both bases mentioned above.
D. Calculate the Pre & Post merger Market Price per share of both company’s & Also show Loss or
Gain per share after merger to shares holders of each company.
 Solution of Comprehensive Case of Merger & Acquisition:
Contents Tariq Company Waheed Company
Present earnings $4,000,000 $900,000
Shares outstanding 1,000,000 300,000
Pre – Merger Earnings Per Share $4 $3
Pre - Merger Price/Earnings Ratio 14X 10X
Pre – Merger Market Price per share 56 30
Post-Merger Price/Earnings Ratio 13X 10X
A1. Calculate Share Exchange Ratio on Market Price base:
Share Exchange Ratio = (Resources of Acquired / Resource of Acquiring)
Share Exchange Ratio = (MPS of Acquired / MPS of Acquiring)
Share Exchange Ratio = (30 / 56 ) = 0.5357
0.5357 + 0.5357 * 20% = 0.5357 + 0.1073 = 0.64
Share Exchange Ratio = (Resources of Acquired / Resource of Acquiring) * (1 + Premium%)
Share Exchange Ratio = (MPS of Acquired / MPS of Acquiring) * (1 + Premium%)
Share Exchange Ratio = (30 / 56 ) * (1 + 20%) = 0.64
B1. Calculate New Shares of Tariq to Waheed Shareholders:
New Shares of Tariq to Waheed Shares holders = Waheed’s Shares * Share Exchange ratio
New Shares of Tariq to Waheed Shares holders = 300,000 * 0.64 = 192,000
C1. Calculate Post Merger Earning Per Share of Tariq Company
Post-Merger EPS = Post Merger Total Earning / Total No. of Common Shares Outstanding
Post-Merger EPS = (4000000+900000) / (1000000 + 192000) = 4.11
D1. Calculate Post Merger Market Price Per share of Tariq Company
Post-Merger MPS = Post Merger EPS * Post Merger P/E Ratio
Post-Merger MPS = 4.11 * 13 = 53.43
C1. Calculate Accretion & (Dilution) in EPS of both shareholders

Tariq Company Waheed Company

Post-Merger EPS 4.11 4.11
Pre-Merger EPS 4.00 4.69
Accretion or (Dilution) 0.11 (0.58)
Acquired for Comparison purpose: Pre – Merger EPS = Pre Actual EPS / Share Exchange Ratio
Acquired for Comparison purpose: Pre – Merger EPS = 3.00 / 0.64 = 4.69
D1. Calculate Capital Gain or (Loss) in MPS of both shareholders

Tariq Company Waheed Company

Post-Merger MPS 53.43 53.43
Pre-Merger MPS 56.00 46.87
Capital Gain or (Loss) (2.57) 6.55
Acquired for Comparison purpose: Pre – Merger MPS = Pre Actual MPS / Share Exchange Ratio
Acquired for Comparison purpose: Pre – Merger MPS = 30.00 / 0.64 = 46.87
A2. Calculate Share Exchange Ratio on EPS basis:
Share Exchange Ratio = Resources of Acquired / Resource of Acquiring
Share Exchange Ratio = EPS of Acquired / EPS of Acquiring
Share Exchange Ratio = 3 / 4 = 0.75
B2. Calculate New Shares of Tariq to Waheed Shareholders:
New Shares of Tariq to Waheed Shares holders = Waheed’s Shares * Share Exchange ratio
New Shares of Tariq to Waheed Shares holders = 300,000 * 0.75 = 225,000
C2. Calculate Post Merger Earning Per Share of Tariq Company
Post-Merger EPS = Post Merger Total Earning / Total No. of Common Shares Outstanding
Post-Merger EPS = (4000000+900000) / (1000000 + 225000) = 4.00
D2. Calculate Post Merger Market Price Per share of Tariq Company
Post-Merger MPS = Post Merger EPS * Post Merger P/E Ratio
Post-Merger MPS = 4.00 * 13 = 52.00
C2. Calculate Accretion & (Dilution) in EPS of both shareholders

Tariq Company Waheed Company

Post-Merger EPS 4.00 4.00
Pre-Merger EPS 4.00 4.00
Accretion or (Dilution) 0.00 0.00
Acquired for Comparison purpose: Pre – Merger EPS = Pre Actual EPS / Share Exchange Ratio
Acquired for Comparison purpose: Pre – Merger EPS = 3.00 / 0.75 = 4.00
D2. Calculate Capital Gain or (Loss) in MPS of both shareholders

Tariq Company Waheed Company

Post-Merger MPS 52.00 52.00
Pre-Merger MPS 56.00 40.00
Capital Gain or (Loss) (4.00) 12.00
Acquired for Comparison purpose: Pre – Merger MPS = Pre Actual MPS / Share Exchange Ratio
Acquired for Comparison purpose: Pre – Merger MPS = 30.00 / .75 = 40.00

Earnings Per Share = Earnings after tax / No. of Shares Outstanding

Pre - Earnings Per Share = Pre - Earnings after tax / Pre - No. of Shares Outstanding
Post - Earnings Per Share = Post - Earnings after tax / Post - No. of Shares Outstanding

Market Price Per Share = Earnings Per Share X Price Earnings Ratio
Pre - Market Price Per Share = Pre - Earnings Per Share X Pre - Price Earnings Ratio
Post - Market Price Per Share = Post - Earnings Per Share X Post – Price Earnings Ratio

Marginal Taxation Slabs

0 to 0.5million 5%
0.5million to 1million 10%
1million to 2million 20%
2million to 4million 30%
Company A has income of 2.05million
Company B has Income of (0.06 million)
Company A must acquire company B for Synergy in Tax
2.05miliion X 30% = 0.615million
1.99million X 20% = 0.398 million
Annual Tax Saving 0.217million
Total Value of Tax Saving due to Merger = 0.217 million / 10% = 2.17 million
Company & Waheed Company are currently interested to process merging and
relevant financial information for both companies are as follows:

Contents Tariq Company Waheed Company

Total Debts 15,000,000 4,200,000
Total Shares Holders Equity 10,000,000 2,100,000
Present earnings $4,000,000 $900,000
Shares outstanding 1,000,000 300,000
Pre-Merger Price/Earnings Ratio 14X 10X
Post-Merger Price/Earnings Ratio 13X 10X
E. Calculate Share Exchange Ratio on the basis of Total Assets including 20% premium given to
Waheed Company.
F. Calculate the number of additional shares of common stock in Tariq Company that will need to
be issued to acquire Waheed Company by both bases mentioned in Part (A).
G. Calculate the Pre & Post merger EPS of both company’s & Also show accretion or dilution after
merger to shares holders of each company by both base mentioned above.
H. Calculate the Pre & Post merger Market Price per share of both company’s & Also show Loss or
Gain per share after merger to shares holders of each company.