Koala Technologies is considering the acquisition of Laser Industries in a stock-for-stock exchange.Selected financial data for the two companies is shown below.An immediate synergistic earnings benefit of $2.5 million is expected in this merger.
$$\begin{array} { l r r r }
\text { Sales (millians) } & \frac { \text { Kala } } { \$ 90 } & \frac { \text { Leser } } { \$ 10 } \
\text { Net income (millions) } & \$ 9.4 & \$ 1.2 \
\text { Camman shares autstanding (millians) } & 4.0 & 0.8 \
\text { Earning per share } & \$ 2.35 & \$ 1.50 \
\text { Camnan stack (arice per share) } & \$ 35.00 & \$ 27 \text {.0] }
\end{array}$$
Calculate the postmerger EPS if the Laser shareholders accept an offer of $33.25 a share in a stock-for-stock exchange.
A)$2.21
B)$2.25
C)$2.75
D)$2.23

Question

Koala Technologies is considering the acquisition of Laser Industries in a stock-for-stock exchange.Selected financial data for the two companies is shown below.An immediate synergistic earnings benefit of $2.5 million is expected in this merger.
$$\begin{array} { l r r r } 
\text { Sales (millians) } & \frac { \text { Kala } } { \$ 90 } & \frac { \text { Leser } } { \$ 10 } \
\text { Net income (millions) } & \$ 9.4 & \$ 1.2 \
\text { Camman shares autstanding (millians) } & 4.0 & 0.8 \
\text { Earning per share } & \$ 2.35 & \$ 1.50 \
\text { Camnan stack (arice per share) } & \$ 35.00 & \$ 27 \text {.0] }
\end{array}$$
Calculate the postmerger EPS if the Laser shareholders accept an offer of $33.25 a share in a stock-for-stock exchange.
A)$2.21
B)$2.25
C)$2.75
D)$2.23

Quizplus · Accepted Answer

To calculate the post-merger EPS, first determine the number of new shares issued by Koala to acquire Laser. The offer is $33.25 per share, and Laser has 0.8 million shares, so the total cost is $33.25 * 0.8 million = $26.6 million. Koala's share price is $35, so the number of new shares issued is $26.6 million / $35 = 0.76 million shares. The new total shares outstanding for Koala is 4.0 million + 0.76 million = 4.76 million shares. The combined net income is $9.4 million + $1.2 million + $2.5 million (synergy) = $13.1 million. The post-merger EPS is $13.1 million / 4.76 million shares = $2.75.

Koala Technologies Is Considering the Acquisition of Laser Industries in a Stock-For-Stock