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ABC Corp. has announced a takeover offer for DEF Inc., it is offering a 50%...

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Finance

ABC Corp. has announced a takeover offer for DEF Inc., it is offering a 50% premium to DEFs current market value. Using the financial information listed below answer the following questions. Please show ALL work.

DEF

ABC

Total earnings

$870,000

$3,800,000

Shares outstanding

290,000

1,900,000

EPS

$3.00

$2.00

P/E

12x

18x

Current share price

$36

$36

a) (1 mark) What price is ABC offering to pay DEF shareholders?

b) (1 mark) At ABCs offer, what does it value the entire company at?

c) (1 mark) Based on the offer price, what P/E ratio is implied?

d) (2 marks) At the proposed price, how many shares must ABC issue to buy DEF?

e) (1 mark) Following the merger, how many shares will ABC have outstanding?

f) (2 marks) Post merger, what is ABCs EPS? Explain the impact of the merger on ABCs EPS.

g) (2 marks) If DEF was based in another country, what are two additional factors that management must consider with respect to a potential merger, that would NOT have to be considered if it was a domestic merger.

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