Blog Pic and Avatar Plc are considering a merger. Financial data for the two companies as follows: Blog Plc Avatar Plc. 4m Number of shares issued Profit after tax Price/Earnings ratio 2.5m 1.6m 18 1m 9.2 The two companies have estimated that, due to economies of scale, the newly merged company would generate cost savings of 180,000 per year. [You may assume that the cost saving translates into a direct increase in the after-tax profit of Blog Plc after merger.] It is suggested initially that 100% of Avatar Plc's shares would be exchanged for shares in Blog Plc at a rate of one share in Blog Plc for every five shares in Avatar Plc. Required (a) Critically evaluate the economic justifications for takeovers and mergers. (b) Calculate Earning Per Shares (EPS) of both companies before the merger. (13 marks) (4 marks) (c) What are the total number of shares of Blog plc after the merger? (4 marks) (d) Estimate the expected reduction of EPS after the merger from the point of view of Blog plc's shareholders. (4 marks)