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Section__10A_Solutions

Section__10A_Solutions - Section#10 M&A Analysis...

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Section #10 M&A Analysis: The “HungryBigFish” Case April 2nd, 2009 Copyright 2009 by Rich Curtis
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HBF SSM Shares Outstanding 100,000 60,000 Earnings $200,000/year $60,000/year Total Equity Market Value $6,000,000 $900,000 Pre -Merger Data : HBF SSM Share Price EPS P/E Ratio a. Please fill in the following table assuming no synergies. $60 $15 $2 $1 30 15
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What is your best guess as to why HBF trades at 30 times earnings, while SSM trades at 15 times earnings? What will the growth rate of earnings of the merged firm be? What is are reasonable boundaries for the P/E ratio of the merged firm?
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b. Given the terms of the stock-for-stock exchange, what is the “stated” value that is received for each share of SSM? Since every 3 shares of SSM stock held the SSMinnow shareholders receive 1 share of HBF worth $60 pre-merger, the “stated” value received is $20 for each SSM share.
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c. What is HBF’s post-merger EPS? HBF Shares Outstanding 120,000 Earnings $260,000/year Total Equity Market Value $6,900,000 EPS = $260,000 120,000 shares = $2.1667/share
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d.
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