Question
Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Both are construction and building material companies. Penn believes the
Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Both are construction and building material companies. Penn believes the acquisition will increase its total after-tax annual cash flows by $4.05 million indefinitely. Acquisition proposal involves is acquiring 100% of Teller Company. Penn is evaluating two alternative payment methods: (a) cash offer price of $6.50 per Teller share; (b) share exchange (script) offer of 0.50 of Penn shares for each share of Teller. After acquisition Peen will have an appropriate discount rate of 10% per annum. The pre-acquisition financial information of two companies are given bellow.
| Teller Corp. | Penn Corp. |
Earnings after tax | $8,000,000 | $15,200,000 |
Issued shares | 17,500,000 | 22,782,000 |
EPS (prior to announcement) | $0.46 | $0.67 |
P/E ratio (Prior to announcement) | 13 | 19 |
Market value | $104,000,000.00 | $228,800,000.00 |
Calculate the gain from acquisition under:
(a) Cash offer for both Penn and Teller
(b) Stock offer for both Penn and Teller
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started