Mergers and Acquisitions

Question 1

What is a reverse takeover?

Answer 1

When a smaller company issues a large number of shares to a bigger company? Idk

Question 2

What is the maximum and minimum exchange ratio when exchange based on earnings per share, in terms of this mergers topic?

Answer 2

Maximum exchange ratio - this is the max the acquiring firm can offer before it experiences a decline in EPS
* earnings per share of target company + (synergistic earnings / # of target companies shares prior to merger) / earnings per share of acquiring company

Minimum exchange ratio - this is the minimum the target companies shareholders can accept before experiencing a dilution in EPS
* earnings per share of target company / ((synergistic earnings / # of acquiring companies shares prior to merger) + earnings per share of acquiring company)

Question 3

What are synergistic benefits?

Answer 3

The benefits that the companies will experience because they are being merged

Question 4

What is the minimum and maximum amount that an acquiring company would be willing to pay for the target companies shares?

Answer 4

Minimum amount
* total, market value of the target company equity
* per share, market price per target company share

Maximum amount
* market value of the target company equity + PV of synergies OR market value of merged firm equity - market value of acquiring company equity
* market price of target company share + (PV of synergies/# of target company shares prior to merger)

Question 5

What are the ways you can enact a merger?

Answer 5

1, acquisition financed by cash
2, acquisition financed by share exchange
* exchange ratio based on earnings per share
* exchange ratio based on market value

Question 6

What is the maximum and minimum exchange ratio when exchange based on Market value, in terms of this mergers topic?

Answer 6

Maximum exchange ratio - this is the max the acquiring firm can offer before it experiences a decline in market value
* (market price in target company share + ( PV of synergies / # of shares of target company before the merger) )/ market price of acquiring company share OR
* ((MARKET VALUE of merged firm equity - market value of acquiring company equity) / # of shares of target company before merger) / market price per acquiring company share

Minimum exchange ratio - this is the minimum the target companies shareholders can accept before experiencing a decline in market value
* market price of target company share/ ((synergistic earnings / # of acquiring companies shares prior to merger) + market price per share of acquiring company) OR
* market price of target company share/ ((market value of merged firm equity - market value of target company equity) / # of acquiring companies shares prior to merger)