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Computing the Maximum Share Exchange Rate for a Merger Candidate

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(Stock for Stock Merger) A Corporation is considering the acquisition of X Corporation. Each corporation has the following data:
Existing Income Number of Shares
A Corporation $4,200,000 621,000
X Corporation $2,200,000 365,000
Synergistic additional benefits from the combination are $1,200,000.
What is the minimum exchange ratio necessary to keep the X shareholders whole in terms of earnings per share?
What maximum exchange ratio would the A Corporation shareholder accept in taking over X Corporation and remain whole in terms of earnings per share?

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Solution Summary

This solution illustrates how to compute the minimum and maximum number of shares that current shareholders of the merger partners would accept in order to retain their earnings per share.

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