| Answers 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? |