M&A & Merger Models
Worked example: acquirer earns 600 on 150 shares (EPS 4.00) with a 48 share price (12x P/E). It buys a target earning 150 for 2,400 of stock (16x). Compute year-1 dilution and the pre-tax synergies needed to break even (tax 25%).
Model answer
New shares = 2,400 / 48 = 50, so pro forma shares = 200. Pro forma net income = 600 + 150 = 750. Pro forma EPS = 750 / 200 = 3.75 versus 4.00 standalone - dilutive by 6.25%, consistent with the…
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