Proforma P/E Ratio post merger?
Hi. I am very confused when calculating proforma P/E ratios post a merger. Confusion arising from Mergers & Inquisitions which states in their guide:
You always wipe out another company’s Equity Value and Shareholders’ Equity when you acquire it in an M&A deal because it no longer exists as an independent entity.
However, if it's a 100% stock deal, and A (market cap 1000, net income 100) is acquiring B (market cap 1000, net income 125), what will be the proforma P/E ratio? No synergies or premium assumed. Would we not add both market caps (1000+1000) and divide by combined net income of 225. If so, How would this answer be different if this was 100% debt or cash transaction instead?
Have a first-round interview coming up and my technicals are so rusty. Please can someone sensible help? This is a time-sensitive matter. Thanks a ton!
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