5. Merger valuation with multiples

Tyler Processings current stock price is $41.09 per share. Tyler is 100% equity financed and has been targeted by several potential acquirers. One of these suitors, Gellar Manufacturing, has conducted analysis to determine Tylers value to Gellar if it were acquired.

Tylers current price/earnings (P/E) ratio is 16.5, but Gellar is confident that under its management Tyler's P/E ratio would be 19.8. Tyler is expected to generate $64 million of operating income (EBIT) this year and has 18 million shares of stock outstanding. Both firms have a tax rate of 30%. How much per share is Tylers stock worth if Gellar acquires the company? (Note: Round intermediate calculations to two decimal places.)

A. $49.30 per share

B. $54.23 per share

C. $111.55 per share

D. $41.09 per share

How much synergy is this merger expected to generate?

A. $8.21 per share

B. $9.85 per share

C. $6.57 per share

D. $12.32 per share