1) Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. Rearden Metal is thinking of buying Associated Steel, which has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Rearden Metal will pay for Associated Steel by issuing new shares. There are no expected synergies from the transaction. Assume Rearden offers an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy Associated Steel.
A. Premium payable
The premium payable will be $12 million. The total value to be paid to Associated Steel's Shareholders will be $72 million
B) The EPS of the company is reduced after acquisition, so this is a dilutive deal
The EPS of the company before the acquisition was $2
C)
The PE ratio increased from 10 to 10.4.
Here the PE of Rearden Metal (10) is lower than the PE of Associated Steel (12). If the Acquiror's PE is lower than the PE of the target, the deal is going to be dilutive
1) Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and...
1) Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. Rearden Metal is thinking of buying Associated Steel, which has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Rearden Metal will pay for Associated Steel by issuing new shares. There are no expected synergies from the transaction. Assume Rearden offers an exchange ratio such that, at current pre-announcement share prices...
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