Essex Industries is considering the acquisition of Twinsburg Company in a stock-for-stock exchange. The following financial data are available on both companies. (Assume no synergy is expected with this merger.) Calculate answers to nearest 0.001. ?? $\begin{array}{lrr}
& \text { Essex } &{\text { Twinsburg }} \
\text { Sales } & \$ 500 \text { million } & \$ 50 \text { million } \
\text { Net income } & \$ 40 \text { million } & \$ 3.74 \text { million } \
\text { Common shares outstanding } & 5 \text { million } & 1 \text { million }\
\text { Earnings per share } & \$ 8.00 & \$ 3.74 \
\text { Dividends per share } & \$ 3.00 & \$ 1.00 \
\text { Common stock market price } & \$ 64 & \$ 24 \
\text { Pricelearnings ratio } & 8 & 6.42
\end{array}$ ?
Calculate the post-merger earnings per share if the exchange ratio is 0.4 shares of Essex for each share of Twinsburg. (Assume total post-merger earnings are $43,740,000.)

Question

Essex Industries is considering the acquisition of Twinsburg Company in a stock-for-stock exchange. The following financial data are available on both companies. (Assume no synergy is expected with this merger.) Calculate answers to nearest 0.001. ?? $\begin{array}{lrr} 
& \text { Essex } &{\text { Twinsburg }} \
\text { Sales } & \$ 500 \text { million } & \$ 50 \text { million } \
\text { Net income } & \$ 40 \text { million } & \$ 3.74 \text { million } \
\text { Common shares outstanding } & 5 \text { million } & 1 \text { million }\
\text { Earnings per share } & \$ 8.00 & \$ 3.74 \
\text { Dividends per share } & \$ 3.00 & \$ 1.00 \
\text { Common stock market price } & \$ 64 & \$ 24 \
\text { Pricelearnings ratio } & 8 & 6.42
\end{array}$ ?
Calculate the post-merger earnings per share if the exchange ratio is 0.4 shares of Essex for each share of Twinsburg. (Assume total post-merger earnings are $43,740,000.)

Quizplus · Accepted Answer

The correct answer is A.The post-merger earnings per share can be calculated as follows:Post-merger earnings per share = (Total post-merger earnings) / (Total post-merger shares outstanding)Total post-merger earnings = $43,740,000Total post-merger shares outstanding = 5 million + (1 million * 0.4) = 5.4 millionPost-merger earnings per share = $43,740,000 / 5.4 million = $8.10

Essex Industries Is Considering the Acquisition of Twinsburg Company in a Stock-For-Stock