Question 22

An analyst suggested that the reason for the takeover is that American Airways shares were underpriced. Explain the reasoning behind her argument.

U The data below is related to the next five questions (question 19-23) US Airlines and American Airways are stock market listed companies in the US. Both firms are in the aviation industry, both operate only in North America, and both have been operating for over 50 years. Their stock market data is: US Airlines American Airways Number of shares 100m 50m Price per share $8 $3 Market capitalization $800m $150m Earnings $100m $75m EPS $1 $1.5 P/E ratio 8 2 US Airlines is considering a bid to buy American Airways. Dr. Lim, an expert in the aviation industry. estimated that the synergy gain for US Airlines will be $15m