The shareholders of Jolie Company have voted in favor of a buyout offer from Pit
ID: 2795640 • Letter: T
Question
The shareholders of Jolie Company have voted in favor of a buyout offer from Pitt Corporation. Information about each firm is given here:
Jolie's shareholders will receive one share of Pitt stock for every three shares they hold in Jolie.
What will the EPS of Pitt be after the merger? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
What will the PE ratio be if the NPV of the acquisition is zero? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
What must Pitt feel is the value of the synergy between these two firms?
The shareholders of Jolie Company have voted in favor of a buyout offer from Pitt Corporation. Information about each firm is given here:
Explanation / Answer
No of new shares issued by Pit to the jolie shareholders=84000/3
= 28000 shares
Total no of shares of pit after merger:
Existing stock of Pit = 320000
No of new shares issued to joli by pit = 28000
Total No of shares = 348000 shares
Total earnings after merger =1,90,000+9,50,000
= $ 11,40,000
Earning per share after merger = 11,40,000/348000
=$ 3.276 per share
A.2)Calculation of Weighted Average PE ratio:
Weighted average PE ratio= 29 times
95.004
Market value of shares given to Jolie stockholders= 95*28000
=26,60,000
Pre merger marketvalue =26,60,000
There are no merger gains
Total Market Value Before Merger=2660000+3040000
=3,30,60,000
Total market value After merger =3,30,60,000
There are no merger gains
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