Question
(25 points) The Washington Company (TWC) wants to purchase (or merge with) The Maryland Company (TMC). TWC is trading for $70/share and TMC for $35/share.
- (25 points) The Washington Company (TWC) wants to purchase (or merge with) The Maryland Company (TMC). TWC is trading for $70/share and TMC for $35/share. Both are all-equity companies, each with 1,000,000 shares outstanding. TWC has earnings per share of $2.00 and TMC has earnings per share of $3.50.
(a) If the two firms merge, with TWC acquiring TMC for its current market value in an exchange of stock, what will be the post-merger earnings per share?
(b) Then, suppose TWC pays a 30% premium to buy TMC. How many shares of TWC will it take to purchase TMC? Now what will EPS be if TWC pays the 30% premium?
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Cost Of Capital Applications And Examples
Authors: Shannon P. Pratt, Roger J. Grabowski, Richard A. Brealey
5th Edition
1118555805, 9781118555804
