Help with M&A question
MetLife intends to acquire Grocers. Price of MetLife's share is $20. MetLife's earnings in perpetuity is 20million. Assume MetLife's (all equity firm) cost of capital is 10%. Grocers has 4million earnings in perpetuity. Grocers has 1million tax-loss carryforward for perpetuity. Combined firm is expected to have additional 1.5million net profits forever. If MetLife do not acquire Grocers in the end, MetLife will suffer a 0.5 million reduction in annual earnings.
a) If MetLife intends to pay 70million to acquire Grocers, what is the NPV of this acquisition for MetLife?
b) If MetLife is considering an all-stock acquisition, what is the number of new shares needed to be issued?
c) What should the post-acquisition price be?
