Presto Industries is considering the acquisition of the Kasa Company in a stock-for-stock exchange. The following financial data are available on both companies. (Assume no synergy is expected with this merger.) Presto Kasa Sales (in millions) 1,500 350 Net income (in millions) 300 80 Common shares outstanding (in millions) 50 20 Earnings per share 6.00 4.00 Dividends per share 2.50 0.50 Common stock market price 90 160.00 Price/earnings ratio 15.00 40.00 1. Calculate the exchange ratio if Presto offers the Kasa stockholders a 12.50% premium over Kasa’s current market price. 2. Calculate the post-merger earnings per share if the exchange ratio is 1.50 shares of Presto for each share of Kasa. (Assume total post-merger earnings are $380 million.) 3. What is Presto’s post-merger share price if the post-merger price/earnings ratio is 26, and the exchange ratio is 1.70? Assume total post-merger earnings are $380 million
Presto Industries is considering the acquisition of the Kasa Company in a stock-for-stock exchange. The following financial data are available on both companies. (Assume no synergy is expected with this merger.)
|
|
Presto |
Kasa |
|
Sales (in millions) |
1,500 |
350 |
|
Net income (in millions) |
300 |
80 |
|
Common shares outstanding (in millions) |
50 |
20 |
|
Earnings per share |
6.00 |
4.00 |
|
Dividends per share |
2.50 |
0.50 |
|
Common stock market price |
90 |
160.00 |
|
Price/earnings ratio |
15.00 |
40.00 |
1. Calculate the exchange ratio if Presto offers the Kasa stockholders a 12.50% premium over Kasa’s current market price.
2. Calculate the post-merger earnings per share if the exchange ratio is 1.50 shares of Presto for each share of Kasa. (Assume total post-merger earnings are $380 million.)
3. What is Presto’s post-merger share price if the post-merger price/earnings ratio is 26, and the exchange ratio is 1.70? Assume total post-merger earnings are $380 million
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