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Posted: March 2nd, 2022
Mergers & Acquisition: Combination Analysis
Problem 2
Answers required in all light red-shaded boxes.
Problem 2
80% Debt
Pro-Forma
Target Buyer NewCo
Book Value Mkt Value Book Value Mkt Value
12/31/18 12/31/18 12/31/18 12/31/18 12/31/18
Current Assets 50,000 40,000 500,000 400,000
PP&E 2,000,000 4,000,000 9,000,000 8,000,000
Goodwill – 0 – 0 – 0 – 0
Other Assets 200,000 300,000 800,000 750,000
Total Assets 2,250,000 4,340,000 10,300,000 9,150,000 – 0
Accts Payable 50,000 50,000 50,000 50,000
Long-Term Debt 1,000,000 1,290,000 4,000,000 4,100,000
Equity 1,200,000 3,000,000 6,250,000 5,000,000
Total Liabilities and Equity 2,250,000 4,340,000 10,300,000 9,150,000 – 0
2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research WritersE EPS 1.00 3.00
Shares Outst. 100,000 75,000
Price/Share 40.00 40.00
P/E Multiple 40x 13.33x
Debt/Capital 45.5% 39.0%
Interest Rate on Debt pre-tax 8.0%
Percent Debt 80.0%
Tax Rate for both 25.0%
1. Assume Buyer is acquiring Target, financed with 80% debt and 20% stock. The stock prices shown above
are the prices involved (i.e., the buyer’s stock at time of deal is $40 and they are paying $40/share for the target).
The deal is closing on 12/31/18. Interest rate and tax rate assumptions are shown above.
Shares outstanding and 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers Estimated standalone EPS are given above.
Calculate the 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research WritersE EPS of the combined entity. Assume zero synergies.
EPS =
2. What amount of pre-tax synergies are required to make the combined
EPS break-even? If the deal is already break-even or accretive, you can answer “n/a.”
Pre-Tax to Breakeven =
3. Fill in the combined pro-forma Balance sheet at 12/31/18 for the new Buyer company
Get custom essay samples and course-specific study resources via course hero homework for you service – Include the new number of Buyer shares outstanding after the close. See Above Red Boxes within H9-H29 range
4. Fill in the boxes for the cash portion per share and the exchange ratio of the deal (red boxes): You would say this deal is structured as:
Cash, plus
shares of Buyer per share of Target
5. What is the Pro Forma Debt/Capitalization Ratio for NewCo?
6. What percentage of NewCo does Buyer control?
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