Merger Model
Does anyone know how to solve either of the questions below, I'm extremely lost and have tried to figure them out for a while but can't seem to get to the answer
Company A: 10x PE, MC 100, SO 10, TR 50% // Company B: 10x PE MC 100, 10 SO TR 20%... A buys B for a 30% premium ... Company A buys Company B in an all stock deal with no debt. What are the pre-tax synergies to make this break-even?
Buyer acquires 100% of a company using a combination of stock, 4x leverage, and 400 in cash. The buyer currently has a share price of $5 and issues 200 shares to purchase the seller. The seller has 150 shares outstanding and a share prcie of $10. What premium on the price did the buyer pay
Hmm been a while since I finished my finance degree so just thinking out loud.
1. Assuming TR is tax rate, it means A bought B for $130. Value of post-tax synergy is hence $30. I think the tax rate of acquirer is the relevant one, so pre-tax synergies of $60?
2. Shares are worth $5*200, so $1000. $400 in cash plus 4x leverage is $2,000 ($400+$400*4). In total they paid $3000, for a company worth $1500 (150*$10) - so a 100% premium.
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