Merger model

Question 1

Walk through a basic merger model

Answer 1

Used to analyze financial profiles of 2 companies and determine impact on EPS

1. Make assumption about acquisition
   Price, cash, stock or debt
2. Determine valuation of shares outstanding of buyer and seller and project IS for each one
3. Combine income statements and get combined net income and divide by new shared income to determine EPS impact

Question 2

Merger vs Acquisition

Answer 2

Merger is companies close in siye, acquisition one is significantly larger

Question 3

Why MnA

Answer 3

Gain market share
Grow quicker
Good opportunity, seller is undervalues,
Strategic for tech, intellectual property
Synergies

Question 4

Why is an acquisition dilutive

Answer 4

If additional net income the seller contributes not enough to offset buyers foregone interest on cash, additional interest paid on debt and effects of issuing additional shares

Question 5

How to know if it will be accreditive or diluted

Answer 5

If deal involves cash, ebt and stock no rule of thumb

If only cash and debt you can compare interest and foregone cash to PTI

In all stock if byer has higher PE than seller, it will be accreditive. If you are paying more for earnings ,