Whipple Industries is considering the acquisition of Blanchard Company in a stock-for-stock exchange. Selected financial data for the two companies is shown below. No synergy is expected in this merger. $$\begin{array} { l r r }
& \text { Whipple } & \text { Blanchard } \
\text { Sales (millions) } & \$ 150 & \$ 30 \
\text { Net income (millions) } & \$ 25 & \$ 3.5 \
\text { Common shares outstanding (millions) } & 8 & 2 \
\text { Earnings per share } & \$ 3.125 & \$ 1.75 \
\text { Dividends per share } & \$ 1.50 & \$ 0.75 \
\text { Common stock price per share } & \$ 40 & \$ 19.50
\end{array}$$ ? Determine the post-merger earnings per share if the Blanchard company shareholders accept an offer of $22 per share in a stock-for-stock exchange.

Question

Whipple Industries is considering the acquisition of Blanchard Company in a stock-for-stock exchange. Selected financial data for the two companies is shown below. No synergy is expected in this merger. $$\begin{array} { l r r } 
& \text { Whipple } & \text { Blanchard } \
\text { Sales (millions) } & \$ 150 & \$ 30 \
\text { Net income (millions) } & \$ 25 & \$ 3.5 \
\text { Common shares outstanding (millions) } & 8 & 2 \
\text { Earnings per share } & \$ 3.125 & \$ 1.75 \
\text { Dividends per share } & \$ 1.50 & \$ 0.75 \
\text { Common stock price per share } & \$ 40 & \$ 19.50
\end{array}$$ ? Determine the post-merger earnings per share if the Blanchard company shareholders accept an offer of $22 per share in a stock-for-stock exchange.

Quizplus · Accepted Answer

To calculate the post-merger earnings per share (EPS), first, determine the exchange ratio based on the offer price of $22 per share for Blanchard's shares. The exchange ratio is the offer price divided by the acquirer's stock price: $22 / $40 = 0.55. This means for each Blanchard share, shareholders will receive 0.55 shares of Whipple. Next, calculate the total number of shares issued by Whipple for the acquisition: 2 million (Blanchard shares) * 0.55 = 1.1 million new Whipple shares. The post-merger total shares outstanding = Whipple's original shares + new shares issued = 8 million + 1.1 million = 9.1 million shares. The total net income post-merger = Whipple's net income + Blanchard's net income = $25 million + $3.5 million = $28.5 million. Finally, the post-merger EPS = total net income / total shares outstanding = $28.5 million / 9.1 million shares = approximately $3.13.

Whipple Industries Is Considering the Acquisition of Blanchard Company in a Stock-For-Stock