Thermo Fisher (“Fisher”) is considering an acquisition of Life Technologies (“Life Tech”). Life Tech shares currently trade at $60.75 per share with 179.3 million shares outstanding. Fisher shares currently trade at $40.50 per share with 200 million shares 2 | P a g e outstanding. The current net earnings of Fisher and Life Tech are $440.00 and $322.74 million, respectively. The current net earnings are expected to remain unchanged following the acquisition. It is also estimated that the synergy from acquisition will yield an additional $50 million of annual net earnings to the new company. Marginal tax rate remains unchanged at 35%. Fisher offers $79.80 for each Life Tech share. Assume that Fisher decides to offer 0.8 Fisher share plus remaining in cash for each Life Tech share. The cash will be financed by borrowing from an investment bank at the annual interest rate 5% over 10 years. What is the net earning per shares (EPS) of the combined firm following deal completion? Compared with Fisher’s EPS before the acquisition, has the share of combined firm been accreted or diluted, and by how much?
Thermo Fisher (“Fisher”) is considering an acquisition of Life Technologies (“Life Tech”). Life Tech shares currently trade at $60.75 per share with 179.3 million shares outstanding. Fisher shares currently trade at $40.50 per share with 200 million shares 2 | P a g e outstanding. The current net earnings of Fisher and Life Tech are $440.00 and $322.74 million, respectively. The current net earnings are expected to remain unchanged following the acquisition. It is also estimated that the synergy from acquisition will yield an additional $50 million of annual net earnings to the new company. Marginal tax rate remains unchanged at 35%. Fisher offers $79.80 for each Life Tech share. Assume that Fisher decides to offer 0.8 Fisher share plus remaining in cash for each Life Tech share. The cash will be financed by borrowing from an investment bank at the annual interest rate 5% over 10 years. What is the net earning per shares (EPS) of the combined firm following deal completion? Compared with Fisher’s EPS before the acquisition, has the share of combined firm been accreted or diluted, and by how much?
Total (new) earnings = $536.53 New EPS = $1.56
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