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# Mergers & Acquisition Analysis

## Problem 2

 Answers are required in all light red-shaded boxes. Problem 2 80% Debt Pro-Forma Target Buyer NewCo Book Value Mkt Value Book Value Mkt Value 12/31/18 12/31/18 12/31/18 12/31/18 12/31/18 Current Assets 50,000 40,000 500,000 400,000 PP&E 2,000,000 4,000,000 9,000,000 8,000,000 Goodwill – 0 – 0 – 0 – 0 Other Assets 200,000 300,000 800,000 750,000 Total Assets 2,250,000 4,340,000 10,300,000 9,150,000 – 0 Accts Payable 50,000 50,000 50,000 50,000 Long-Term Debt 1,000,000 1,290,000 4,000,000 4,100,000 Equity 1,200,000 3,000,000 6,250,000 5,000,000 Total Liabilities and Equity 2,250,000 4,340,000 10,300,000 9,150,000 – 0 2019E EPS 1.00 3.00 Shares Outst. 100,000 75,000 Price/Share 40.00 40.00 P/E Multiple 40x 13.33x Debt/Capital 45.5% 39.0% Interest Rate on Debt pre-tax 8.0% Percent Debt 80.0% Tax Rate for both 25.0% 1. Assume Buyer is acquiring Target, financed with 80% debt and 20% stock. The stock prices shown above are the prices involved (i.e., the buyer’s stock at time of deal is \$40 and they are paying \$40/share for the target). The deal is closing on 12/31/18. Interest rate and tax rate assumptions are shown above. Shares outstanding and 2019 Estimated standalone EPS are given above. Calculate the 2019E EPS of the combined entity. Assume zero synergies. EPS = 2. What amount of pre-tax synergies are required to make the combined EPS break-even? If the deal is already break-even or accretive, you can answer “n/a.” Pre-Tax to Breakeven = 3. Fill in the combined pro-forma Balance sheet at 12/31/18 for the new Buyer company Include the new number of Buyer shares outstanding after the close. See Above Red Boxes within H9-H29 range 4. Fill in the boxes for the cash portion per share and the exchange ratio of the deal (red boxes): You would say this deal is structured as: Cash, plus shares of Buyer per share of Target 5. What is the Pro Forma Debt/Capitalization Ratio for NewCo? 6. What percentage of NewCo does Buyer control?

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