Stock Or Cash -- A Financial Perspective

1
Stock Or Cash -- A Financial Perspective

• All Stock Deal
• A Plans to Acquire T in a Stock-for-Stock Deal
  With T Receiving 84.30 for Each Share of Its
  Common Stock. A Expects No Change to Its P/E
  Multiple Post-closing and Assumes No Earnings
  Growth Due to Synergy.

2

Pre Deal Facts
Company A Company T
Net Earnings Available For Common 281,500 62,500
of Shares Outstanding 112,000 18,750
Market Price Per Share 56.25 62.50
3
Accretion/Dilution Analysis

• Purchase Price Premium is 35 84.30 (As
  offer price)/62.50 (Ts pre deal market price.

4
Accretion/Dilution Analysis

• Purchase Price Premium is 35 84.30 (As
  offer price)/62.50 (Ts pre deal market price.
• Exchange Ratio is 1.5 84.30 (As offer
  price)/56.25(As pre deal market price).

5
Accretion/Dilution Analysis

• Purchase Price Premium is 35 84.30 (As
  offer price)/62.50 (Ts pre deal market price.
• Exchange Ratio is 1.5 84.30 (As offer
  price)/56.25(As pre deal market price).
• A will issue 28,125 new shares I.5 x 18,750 T
  shares outstanding.

6
Accretion/Dilution Analysis

• Purchase Price Premium is 35 84.30 (As
  offer price)/62.50 (Ts pre deal market price.
• Exchange Ratio is 1.5 84.30 (As offer
  price)/56.25(As pre deal market price).
• A will issue 28,125 new shares I.5 x 18,750 T
  shares outstanding.
• Total shares of NEWCO 140,125 consisting of
  112,000 (As pre deal shares outstanding)
  28,125 new shares issued.

7
Accretion/Dilution Analysis

• Purchase Price Premium is 35 84.30 (As
  offer price)/62.50 (Ts pre deal market price.
• Exchange Ratio is 1.5 84.30 (As offer
  price)/56.25(As pre deal market price).
• A will issue 28,125 new shares I.5 x 18,750 T
  shares outstanding.
• Total shares of NEWCO 140,125 consisting of
  112,000 (As pre deal shares outstanding)
  28,125 new shares issued.
• NEWCOs expected EPS is 2.46 consisting of
  281,500 (A) 62,500 (B) 344,000/140,125
  NEWCO shares outstanding.

8
Accretion/Dilution Analysis

• As pre merger EPS of 2.51 resulted in a pre
  merger P/E of 22.4 (56.25 market price)/2.51
  EPS).

9
Accretion/Dilution Analysis

• As pre merger EPS of 2.51 resulted in a pre
  merger P/E of 22.4 (56.25 market price)/2.51
  EPS).
• NEWCOs expected share price of 55.10 is
  calculated from its expected EPS of 2.46 x its
  P/E multiple of 22.4.

10
Accretion/Dilution Analysis

• As pre merger EPS of 2.51 resulted in a pre
  merger P/E of 22.4 (56.25 market price)/2.51
  EPS).
• NEWCOs expected share price of 55.10 is
  calculated from its expected EPS of 2.46 x its
  P/E multiple of 22.4.
• This deal likely will result in dilution of 1.15
  per share and As shareholders owing 79.9 of
  NEWCO with Ts shareholders owning 20.1.

11
All Cash Deal

• T Agrees to an All Cash Purchase of 100 of Its
  Outstanding Common Stock for 84.30/share With
  the Deal Financed by Excess Cash Balances on Hand.

12
Accretion/Dilution Analysis

• NEWCOs EPS 281,500 (A) 62,500 (B)
  344,000/112,000 AT shares outstanding 3.07.

13
Accretion/Dilution Analysis

• NEWCOs EPS 281,500 (A) 62,500 (B)
  344,000/112,000 AT shares outstanding 3.07.
• NEWCOs expected share price of 68.77 is
  calculated from its expected EPS of 3.07 x its
  P/E multiple of 22.4.

14
Accretion/Dilution Analysis

• ATs EPS 281,500 (A) 62,500 (B)
  344,000/112,000 AT shares outstanding 3.07.
• ATs expected share price of 68.77 is calculated
  from its expected EPS of 3.07 x its P/E multiple
  of 22.4.
• This deal likely will result in accretion of
  12.52 per share and As shareholders own 100 of
  NEWCO.
• Source Mergers, Acquisitions, and other
  Restructuring Activities by Donald DePamphlis,
  Academic Press, 2001.