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It is about merger and acquisition

St. Joseph's University Haub School of Business Mergers & Acquisitions FIN 611 Fall, 2015 Chapter 16 Case: Bed, Bath & Beyond Suppose Bed Bath & Beyond, a chain of stores selling bed linens, bath items, and home and kitchen furnishings, decides to acquire Pier 1 Imports, Inc., a retail chain that sells furniture and home furnishings, dining and kitchen goods, and bath and bedding accessories. At the end of fiscal year 2001, Pier 1 has 96.3 million shares outstanding, currently trading at $17.05 apiece. Suppose Bed, Bath & Beyond pays $21.31 per Pier 1 share. At its current share price of $33.90, Bed Bath & Beyond will have to issue 60.5 million shares to pay for the acquisition. The income statements and balance sheets for both companies are in the spreadsheet Worksheet Chapter 15 - Bed Bath Beyond [provided separately]. 1. Assume Bed Bath & Beyond acquires 100 percent of Pier 1, and that the transaction takes place at fiscal year end 2001. Prepare a consolidating balance sheet to reflect the acquisition at time of acquisition. Then, prepare an income statement for fiscal year 2002, the year following the acquisition. Assume that: The book values of Pier 1's assets and liabilities are equal to their fair mark values. There is a total of $500 million in identifiable intangible assets, which will be amortized for 20 years using the straight-line method. The tax rate is 38 percent. 2. Compute the following for Bed Bath & Beyond, pre- and post-merger, and in the appropriate parts of the table that follows: Before Merger Gross margin Operating margin Net margin EPS Accretion (Dilution)$ Accretion (Dilution)% After Merger Bed Bath & Beyond Income Statement ($ Millions) Net sales Cost of sales Gross profit SG&A Operating profit Interest income/(expense) Earnings before taxes Provision for taxes Net earnings Earnings per share Weighted average shares outstanding 2002 2,928.0 1,720.4 1,207.6 861.5 346.1 11.0 357.1 137.5 219.6 0.76 289.7 2001 2,396.7 1,410.2 986.5 713.6 272.8 9.0 281.8 109.9 171.9 0.61 283.9 Balance Sheet ($ Millions) Assets Current assets: Cash and equivalents Merchandise inventories Other current assets Total current assets Investment securities Property and equipment, net Other assets Total assets 2002 2001 429.5 754.0 43.2 1,226.7 51.9 361.7 7.2 1,647.5 239.3 606.7 39.7 885.7 302.7 7.4 1,195.7 270.9 190.9 49.4 511.3 41.9 553.2 192.4 128.8 32.0 353.2 25.5 378.7 Shareholders' equity: Common stock Retained earnings Total shareholders' equity 241.6 852.8 1,094.4 183.9 633.2 817.0 Total liabilities and shareholders' equity 1,647.5 1,195.7 Liabilities and Shareholders' Equity Current liabilites: Accounts payable Accrued expenses and other current liabilities Income taxes payable Total current liabilities Deferred rent and other liabilities Total liabilities Pier 1 Imports Inc. Income Statement ($ Millions) Net sales Operating costs and expenses: Cost of sales SG&A Depreciation and amortization Operating income Nonoperating income and expenses: Interest and investment income Interest expense Income before taxes Provision for taxes Net income Earnings per share Average shares outstanding 2002 1,548.6 2001 1,411.5 898.8 448.1 42.8 1,389.7 158.8 817.0 399.8 43.2 1,260.0 151.5 2.5 (2.3) 0.2 159.0 58.8 100.2 1.06 94.4 1.9 (3.1) (1.3) 150.2 55.6 94.7 0.98 96.3 Balance Sheet ($ Millions) Assets Current assets: Cash and equivalents Other accounts receivable, net Inventories Prepaid expenses and other current assets Total current assets Properties, net Other noncurrent assets 2002 2001 235.6 6.2 275.4 87.9 605.2 210.0 47.6 862.7 46.8 8.4 310.7 111.2 477.1 212.1 46.6 735.7 Liabilities and Shareholders' Equity Current liabilites: Current portion of long term debt Accounts payable and accrued liabilities Total current liabilities Long-term debt Other noncurrent liabilities Total liabilities 0.4 208.0 208.4 25.4 43.3 277.0 144.1 144.1 25.0 34.7 203.8 Shareholders' equity: Common stock Additional paid-in capital Retained earnings Cumulative other comprehensive income Treasury stock Total shareholders' equity 100.8 140.2 429.9 (4.7) (80.5) 585.7 100.8 139.4 344.8 (3.2) (49.9) 531.9 Total liabilities and shareholders' equity 862.7 735.7 0.36974283 Consolidation Balance Sheet Balance Sheet ($ Millions) Buyer Seller 2001 Assets 2001 Assets Current assets: Consolidate Current assets: Cash and equivalents 239.3 Cash and equivalents Merchandise inventories 606.7 Other accounts receivable, net Other current assets Total current assets 39.7 Inventories 46.8 8.4 310.7 Cash and equivalents Merchandise inventories Other current assets Investment securities Prepaid expenses and other 885.7 current assets Total current assets - 477.1 Investment securities Property and equipment, net 302.7 Properties, net 212.1 Property and equipment, net Other assets Total assets 7.4 Other noncurrent assets 1,195.7 Liabilities and Shareholders' Equity Current liabilites: Accounts payable Accrued expenses and other current liabilities Income taxes payable Total current liabilities Deferred rent and other liabilities 111.2 46.6 Other assets 735.7 Liabilities and Shareholders' Equity Current liabilites: Current portion of long term 192.4 debt Accounts payable and accrued 128.8 liabilities Total current liabilities 32.0 353.2 Long-term debt 25.5 Other noncurrent liabilities Total current assets Total assets Shareholders' equity: Total liabilities - Accounts payable Accrued expenses and other current 144.1 liabilities 144.1 Income taxes payable 25.0 34.7 Total current liabilities Deferred rent and other liabilities 203.8 Shareholders' equity: Total liabilities 183.9 Common stock 100.8 Common stock Retained earnings 633.2 Additional paid-in capital 139.4 Retained earnings Retained earnings 344.8 Total liabilities and shareholders' equity 817.0 1,195.7 Cumulative other comprehensive income Treasury stock 336.51 128.80 32.0 497.30 25.5 25.0 34.7 582.54 Shareholders' equity: Common stock Total shareholders' equity - 514.72 53.93 1,931.44 Current liabilites: Other noncurrent liabilities 378.7 1,362.78 Liabilities and Shareholders' Equity Long-term debt Total liabilities 286.17 917.41 159.2 (3.2) (49.9) Total shareholders' equity 531.9 Total liabilities and shareholders' equity 735.7 Total shareholders' equity Cumulative other comprehensive income Total liabilities and shareholders' equity 1289.255 977.97 2,267.23 (3.2) 2,846.57 915.13