Luckin Coffee plans to acquire Starbucks in a stock-for-stock deal with Starbucks receiving $69.90 for each share of its common stock. Luckin Coffee expects no change to its P/E multiple post-closing.

Pre Deal Facts

Luckin Starbucks

Net Earnings $55,200 $299,000

Available for

Common

Shares 16,000 110,000

Outstanding

Market Price $58.25 $65.00

Per Share

Required:

i. Compute the exchange ratio.

ii. Compute the share price premium.

iii. Compute the New EPS of the combined company.

iv. Compute the New Share Price of the combined company (assume existing P/E ratio).

v. Compute the maximum price per share Luckin should be willing pay for Starbucks.

vi. Briefly discuss whether this is a good deal.

vii. Briefly discuss how a share exchange offer differs from a cash offer.