M&A & Merger Models
An all-stock deal: acquirer trades at 20x P/E, target is being bought at 15x. Accretive or dilutive, and why?
Model answer
Accretive. The acquirer's P/E (20x) exceeds the price paid for the target (15x). Equivalently, the acquirer's earnings yield is 1/20 = 5.0% and the target's is 1/15 = 6.7%; it's acquiring earnings at…
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