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You are told that company MM has total earnings for the year 2020 of €6 Millions, a price per share of €30 and 0,5 Million shares outstanding.
Company MM would like to acquire company MC, that has total earnings for year 2020 of €1 Millions, a price per share of €50 and 0.3 Million
shares outstanding. The proposal for acquisition is done via an exchange of stock at a price of €60 per share for the stocks of company MC.
None of the companies has outstanding debt.
a) What are the EPS of company MM after the merger?
b) What will be the new price per share for company MM if the price–earnings ratio does not change?
If there are no synergy gains, what will the share price of MM be after the merger? What will the price–earnings ratio be?
