Acquirer Target Newco Net Income 3500 1050 4495 No. of shares 2500 1100 4075 3600 EPS 1.4 0.95 Stock Price 31 36.5 PE 22.1 38.2 Ratio Ratio of Earnings to buyer 30.00% Dollar Value of Bid 44.3 Premium over target 21% Ratio of PE Paid to PE of Buyer 2.1 Answer 2 questions: 1. Is the deal accretive or dilutive? 2. How much in dollar terms, and percentage, is the deal accretive or dilutive?
Acquirer Target Newco Net Income 3500 1050 4495 No. of shares 2500 1100 4075 3600 EPS 1.4 0.95 Stock Price 31 36.5 PE 22.1 38.2 Ratio Ratio of Earnings to buyer 30.00% Dollar Value of Bid 44.3 Premium over target 21% Ratio of PE Paid to PE of Buyer 2.1 Answer 2 questions: 1. Is the deal accretive or dilutive? 2. How much in dollar terms, and percentage, is the deal accretive or dilutive?
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:Acquirer Target
Newco
Net Income
3500
1050
4495
No. of shares
2500
1100
4075 3600
EPS
1.4
0.95
Stock Price
31
36.5
PE
22.1
38.2
Ratio
Ratio of Earnings to buyer
30.00%
Dollar Value of Bid
44.3
Premium over target
21%
Ratio of PE Paid to PE of Buyer 2.1
Answer 2 questions:
1. Is the deal accretive or dilutive?
2. How much in dollar terms, and percentage, is the deal accretive or
dilutive?
Expert Solution
Step 1 General Introduction
In an acquisition, a deal is accretive if the Earnings per share of the new company formed is higher than the acquirer's standalone before acquisition and a deal is dilutive if the earnings per share of the new company are lower than the acquirer's standalone before acquisition.
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