If an acquisition does not create value, then the:
A) Earnings per share of the acquiring ﬁrm must be the same both before and after the acquisition.
B) Earnings per share can change but the stock price of the acquiring ﬁrm should remain constant.
C) Price per share of the acquiring ﬁrm should increase because of the growth of the ﬁrm.
D) Earnings per share will most likely increase while the price-earnings ratio remains constant.
E) Price-earnings ratio should remain constant regardless of any changes in the earnings per share.

Question

Quizplus · Accepted Answer

If an acquisition does not create value, the earnings per share can change due to the change in number of shares outstanding, but the stock price of the acquiring firm should remain constant because the market has already priced in the acquisition. A decrease in perceived value would lead to a decrease in the stock price of the acquiring firm, but this has already been reflected in the price.

If an Acquisition Does Not Create Value, Then The