Sunlite is considering a merger with Velo Blind by offering the equivalent of $21 a share in a stock-for-stock transaction. Sunlite's current common stock price is $30 a share and Velo's is $17. Other financial data on the two firms is as follows: $$\begin{array} { l r r }
& \text { Sunlite } & \text { Velo Blind } \
\text { Sales (millions) } & \$ 100 & \$ 20 \
\text { Net income (millions) } & \$ 10 & \$ 3 \
\text { No. of shares outstanding (millions) } & 8 & 1.2 \
\text { Earnings per share } & \$ 1.25 & \$ 2.50
\end{array}$$ ? Assuming no economies of scale or synergistic benefits, what will be the post-merger earnings per share?
A) $1.47
B) $1.41
C) $1.50
D) $1.25

Question

Sunlite is considering a merger with Velo Blind by offering the equivalent of $21 a share in a stock-for-stock transaction. Sunlite's current common stock price is $30 a share and Velo's is $17. Other financial data on the two firms is as follows: $$\begin{array} { l r r } 
& \text { Sunlite } & \text { Velo Blind } \
\text { Sales (millions) } & \$ 100 & \$ 20 \
\text { Net income (millions) } & \$ 10 & \$ 3 \
\text { No. of shares outstanding (millions) } & 8 & 1.2 \
\text { Earnings per share } & \$ 1.25 & \$ 2.50
\end{array}$$ ? Assuming no economies of scale or synergistic benefits, what will be the post-merger earnings per share?
A) $1.47
B) $1.41
C) $1.50
D) $1.25

Quizplus · Accepted Answer

The correct answer is A.The post-merger earnings per share will be $1.47. This is calculated by taking the sum of the earnings per share of the two companies and dividing by the total number of shares outstanding after the merger. In this case, the earnings per share of Sunlite is $1.25 and the earnings per share of Velo Blind is $2.50. The total number of shares outstanding after the merger will be 8 million (Sunlite) + 1.2 million (Velo Blind) = 9.2 million shares. Therefore, the post-merger earnings per share will be ($1.25 x 8 million + $2.50 x 1.2 million) / 9.2 million = $1.47.

Sunlite Is Considering a Merger with Velo Blind by Offering