Linpro Industries is considering the acquisition of Odetics Inc. in a stock-for-stock exchange. Assume no immediate synergistic benefits are expected. Selected financial data on the two companies are shown below: $$\begin{array} { l r r }
& \text { Linpro } & \text { Odetics } \
\text { Sales (millions) } & \$ 480 & \$ 90 \
\text { Net income (millions) } & \$ 38 & \$ 10.4 \
\text { Common shares outstanding (millions) } & 10 & 2.1 \
\text { Earnings per share } & \$ 3.80 & \$ 4.95 \
\text { Common stock (price per share) } & \$ 45.60 & \$ 74.25
\end{array}$$ ? Calculate Linpro's postmerger EPS if the Odetics shareholders accept an offer of $90 a share in a stock-for-stock exchange.
A) $4.38
B) $4.29
C) $3.42
D) $3.81

Question

Linpro Industries is considering the acquisition of Odetics Inc. in a stock-for-stock exchange. Assume no immediate synergistic benefits are expected. Selected financial data on the two companies are shown below: $$\begin{array} { l r r } 
& \text { Linpro } & \text { Odetics } \
\text { Sales (millions) } & \$ 480 & \$ 90 \
\text { Net income (millions) } & \$ 38 & \$ 10.4 \
\text { Common shares outstanding (millions) } & 10 & 2.1 \
\text { Earnings per share } & \$ 3.80 & \$ 4.95 \
\text { Common stock (price per share) } & \$ 45.60 & \$ 74.25
\end{array}$$ ? Calculate Linpro's postmerger EPS if the Odetics shareholders accept an offer of $90 a share in a stock-for-stock exchange.
A) $4.38
B) $4.29
C) $3.42
D) $3.81

Quizplus · Accepted Answer

To calculate the postmerger EPS, first determine the number of new shares Linpro will issue to acquire Odetics. Odetics' market value is 2.1 million shares * $90 = $189 million. Linpro's share price is $45.60, so Linpro will issue $189 million / $45.60 = 4.1447 million new shares. The total shares after the merger will be 10 million + 4.1447 million = 14.1447 million shares. The combined net income is $38 million + $10.4 million = $48.4 million. The postmerger EPS is $48.4 million / 14.1447 million shares = $3.42.

Linpro Industries Is Considering the Acquisition of Odetics Inc ? Calculate Linpro's Postmerger EPS If the Odetics Shareholders Accept