06 March 2008
Suppose EPS of A and B are Rs 2 and Rs 3 respectively. A wants to acquire B. Swap ratio-.5:1(1 sh of A for every 2 sh of B) So wht. will be the equivalent EPS of B after merger. sh.cap. of A and B is 20000 and 30000 respectively.
I have solved in the foll. way.
shareholder of B earns rs3 for 1 share so they will be earning Rs 6 for 2 shares.
therefore their equivalent EPS will be 6 in the post-merger .
One book has solved this in the foll. way. Earings of A-40000 and B-90000 shares issued by A-15000. total no. of shares of merged entity-35000 EPS of merged entity-130000/35000=3.7143 So equivalent EPS of B-3.7143X.5=1.8572 Now pl. tell me which approach is correct.
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