Company A: $20 share price, $100 of NI, 100 shares. Company B: $5 share price, $50 of NI, 100 shares. A buys B in a deal that is 60% stock and 40% cash funded by debt at 10% pre-tax, 20% tax rate. What is the pro forma ownership, is the deal accretive, and by how much?

Question

IBPrep · Accepted Answer

B's equity value = $5 x 100 = $500. The 60% stock portion is $300, which at A's $20 share price is 15 new shares.

Company A: $20 share price, $100 of NI, 100 shares. Company B: $5 share price, $50 of NI, 100 shares. A buys B in a deal that is 60% stock and 40% cash funded by debt at 10% pre-tax, 20% tax rate. What is the pro forma ownership, is the deal accretive, and by how much?

Answer

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