Stock Or Cash -- A Financial

Perspective
All Stock Deal
A Plans to Acquire T in a Stock-forStock 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
(As offer price)/$62.50 (Ts pre deal
market price.

Accretion/Dilution Analysis
Purchase Price Premium is 35% = $84.30 (As offer
price)/$62.50 (Ts pre deal market price.

Exchange Ratio is 1.5 = $84.30 (As offer

price)/$56.25(As pre deal market price).

Accretion/Dilution Analysis
Purchase Price Premium is 35% = $84.30 (As offer
price)/$62.50 (Ts pre deal market price.
Exchange Ratio is 1.5 = $84.30 (As offer
price)/$56.25(As 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 (As offer
price)/$62.50 (Ts pre deal market price.
Exchange Ratio is 1.5 = $84.30 (As offer
price)/$56.25(As 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 (As pre deal shares
outstanding) + 28,125 new shares issued.

Accretion/Dilution Analysis
Purchase Price Premium is 35% = $84.30 (As offer
price)/$62.50 (Ts pre deal market price.
Exchange Ratio is 1.5 = $84.30 (As offer price)/$56.25(As
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 (As pre deal shares outstanding) + 28,125 new
shares issued.

NEWCOs expected EPS is $2.46 consisting

of $281,500 (A) + $62,500 (B) =
$344,000/140,125 NEWCO shares
outstanding.

Accretion/Dilution Analysis
As 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
As pre merger EPS of $2.51 resulted in a pre merger P/E
of 22.4 ($56.25 market price)/$2.51 EPS).

NEWCOs 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
As pre merger EPS of $2.51 resulted in a pre merger P/E
of 22.4 ($56.25 market price)/$2.51 EPS).
NEWCOs 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 As shareholders owing
79.9% of NEWCO with Ts 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
NEWCOs EPS = $281,500 (A) + $62,500
(B) = $344,000/112,000 AT shares
outstanding = $3.07.

Accretion/Dilution Analysis
NEWCOs EPS = $281,500 (A) + $62,500 (B) =
$344,000/112,000 AT shares outstanding = $3.07.

NEWCOs 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
ATs EPS = $281,500 (A) + $62,500 (B) =
$344,000/112,000 AT shares outstanding = $3.07.
ATs 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 As shareholders own
100% of NEWCO.
Source: Mergers, Acquisitions, and other Restructuring Activities by
Donald DePamphlis, Academic Press, 2001.