Mergers and Acquisitions Summary

MERGERS AND ACQUISITIONS

1. Share Issue – Based On Eps
 No Synergy earnings

EPS t
ER =
EPS a

Acquirer shares newly issued to Target company’s shareholders = ER x Nt

 Earnings m = Earnings m + Earnings t

 Post-merger issued shares = Number of A shares + Newly issued A shares

Earnings m
 EPS m =
Nr of shares m

Pre-merger Post-merger Difference
EPS a EPS m
EPS t EPS m x ER


2. Share Issue Based On EPS – Maximum ER

 Synergies included
 Maximum Exchange Ratio – Advise Acquirer

SE
EPS t+100 % ( )
Nt
ER max=
EPS a

Acquirer shares newly issued to Target company’s shareholders = ER x Nt

 Earnings m = Earnings m + Earnings t + after tax synergy earnings

 Post-merger issued shares = Number of A shares + Newly issued A shares (ER x Nt)

Earningsm
 EPS m =
Nm

Pre-merger Post-merger Difference
EPS a EPS m
EPS t EPS m x ER




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, 3. Share Issue: Based on EPS – Minimum ER

 Synergy earnings included
 Minimum ER – Advise Target

EPS t
ER min=
SE
EPS a+100 % ( )
Na


Acquirer shares newly issued to Target company’s shareholders = ER x Nt

 Earnings m = Earnings m + Earnings t + after tax synergy earnings

 Post-merger issued shares = Number of A shares + Newly issued A shares (ER x Nt)

Earningsm
 EPS m =
Nm

Pre-merger Post-merger Difference
EPS a EPS m
EPS t EPS m x ER


Range of Possible ER Without Dilution
- If the ER is in between the minimum and maximum ER – no dilution
- ER < Minimum ER: dilution of EPS of target
- ER > Maximum ER: dilution of EPS of acquirer


4. Share Issue – Based on EPS (Apportion Synergy Earnings)

 Each party receive – specific portion of synergy earnings based on earnings

SE
EPS t+%t (
)
Nt
ER=
SE
EPS a+%a ( )
Na

 Acquirer shares newly issued to Target company’s shareholders = ER x Nt




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