12. Merger gains and costs (S32.4) If Winterbourne from Problem 11 has a price-earnings ratio of 12 and Monkton has a P/E ratio of 8, what should be the P/E ratio of the merged firm?

Assume in this case that the merger is financed by an issue of new Winterbourne shares.

Monkton will get one Winterbourne share for every two Monkton shares held. In the short run, the merger has no effect on the earnings outlook for the two businesses.

946 Part Eleven Mergers, Corporate Control, and Governance