Carsley plc and Powell plc are planning to merge to form Stimac plc. It has been agreed that Powell's shareholders will accept three shares in Carsley for every share in Powell they hold. Other details are as follows:
__________________________________Carsley plc______________Powell plc
Number of shares......................................40m............................10m
Annual earnings.....................................£10m..........................£5.8m
P/E ratio...................................................8...............................10
Post-merger annual earnings of the enlarged company are expected to be 8 per cent higher than the sum of the earnings of each of the companies before the merger, due to scale economies and other benefits. The P/E ratio of Stimac plc is expected to be 9. Determine the extent to which the shareholders of Powell will benefit from the proposed merger.