3. Alpha Inc has earnings per share of $2 and 10 million outstanding shares trading at $20 each. It is considering the acquisition of Gamma Plc. Gamma Plc, on the other hand, has earnings per share of $1.25 with 4 million shares outstanding, each traded at $15. To acquire Gamma Plc, Alpha Inc plans to issue new shares, all without anticipating any synergies resulting from the transaction. a. If Alpha acquires Gamma without paying any premium, what will be the earnings per share following the merger? b. If Alpha proposes an exchange ratio resulting in a 20% premium based on the current pre- announcement share prices of both firms to acquire Gamma, calculate the per-share price of the combined company post-merger. c. If Alpha proposes an exchange ratio such that, at the current pre-announcement share prices of both firms, the offer indicates a 20% premium to acquire Gamma, determine the exact premium that Alpha pays for the transaction. d. Discuss some of the uncertainties in merger analysis. How can real option analysis be employed in valuing a merger?
3. Alpha Inc has earnings per share of $2 and 10 million outstanding shares trading at $20 each. It is considering the acquisition of Gamma Plc. Gamma Plc, on the other hand, has earnings per share of $1.25 with 4 million shares outstanding, each traded at $15. To acquire Gamma Plc, Alpha Inc plans to issue new shares, all without anticipating any synergies resulting from the transaction. a. If Alpha acquires Gamma without paying any premium, what will be the earnings per share following the merger? b. If Alpha proposes an exchange ratio resulting in a 20% premium based on the current pre- announcement share prices of both firms to acquire Gamma, calculate the per-share price of the combined company post-merger. c. If Alpha proposes an exchange ratio such that, at the current pre-announcement share prices of both firms, the offer indicates a 20% premium to acquire Gamma, determine the exact premium that Alpha pays for the transaction. d. Discuss some of the uncertainties in merger analysis. How can real option analysis be employed in valuing a merger?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:3. Alpha Inc has earnings per share of $2 and 10 million outstanding shares trading at $20 each.
It is considering the acquisition of Gamma Plc. Gamma Plc, on the other hand, has earnings per
share of $1.25 with 4 million shares outstanding, each traded at $15. To acquire Gamma Plc,
Alpha Inc plans to issue new shares, all without anticipating any synergies resulting from the
transaction.
a. If Alpha acquires Gamma without paying any premium, what will be the earnings per share
following the merger?
b. If Alpha proposes an exchange ratio resulting in a 20% premium based on the current pre-
announcement share prices of both firms to acquire Gamma, calculate the per-share price of
the combined company post-merger.
c. If Alpha proposes an exchange ratio such that, at the current pre-announcement share prices
of both firms, the offer indicates a 20% premium to acquire Gamma, determine the exact
premium that Alpha pays for the transaction.
d. Discuss some of the uncertainties in merger analysis. How can real option analysis be
employed in valuing a merger?
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