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:
Assuming no economies of scale or synergistic benefits, what will be the post-merger earnings per share?

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: 
Assuming no economies of scale or synergistic benefits, what will be the post-merger earnings per share?

Quizplus · Accepted Answer

Solution:
Exchange ratio = $21/$30 = 0.70
Post-merger shares outstanding = 8 + 1.2(.7) = 8.84 million
EPS = $13 million/8.84 million = $1.47

Sunlite Is Considering a Merger with Velo Blind by Offering