M&A Quick Note

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University of Minnesota-Twin Cities *

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Course

8201

Subject

Electrical Engineering

Date

Nov 24, 2024

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pdf

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3

Uploaded by Hughng

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TSM Method Giventhe below scenario Current share price 97 Basic shares outstanding 51M shares An options group s exercise price x u options shares 0.7M shares a If x current share price no options exercised b If 1 x current share price then Diluted share count 1 optionsPrice options shares current price Quick Exercises Exercise 1 Company A acquiror Company B target Company A profile 10 outstanding shares 25 share Net Income 10 Company B profile Purchase EQ U 750 Net Income 10 a Is the transaction dilative or additive Combined NI 20 New shares issued 150 6 shares diluted shares 16 25 New EPS 20 1.25 Out EPS 18 I additive
b Assume the company only uses debt 8 rate to fund the deal Is the deal now additive still Assume 256 tax rate Cost of Debt 8 11 25 1 6 Seller yield 11 PE ratio NI Purchase EQ V 18 6.079 Since cost of debt seller yield this deal is additive that is the threshold interest rate to make this deal dilative 6 671 1,8 2 11 25 1 712 8.89 e what is the combined EV and EQ V Assuming EQ U EV in this case Combined EV 250 150 400 Combined EQ V Buyer EQ V t New EQ issued 400 Exercise 2 Company A is looking to acquire company B and has the followingprofile PIE ratio 10x Cost of Debt 8 Company B has a PIE of lox Assume company A uses t of al loca Cost of Cash 4 ti on Tax rate 258 Is the deal dilutive Yes Step 1 Cost of Acquition 31 18 4 111 2561 31 1,11 2511 6 33
Step 2 Seller's yield 11 PIE ratio 1118 a 6.25 Exercise 3 Acquiror A has EQ U 1000 NI 100 Target B has Purchase EQ V 2000 NI 50 what is the threshold synergy to make the deal additive Stand alone EPS 188 to Total EQ US 3000 New EPS 1504 X 11 25 1 2,1 8000 X 200
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