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Financials after merger

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The Blue Oil Corporation and the Grey Plastics Company have agreed to a merger. The Grey Plastics stockholders will receive .75 shares of Blue for each share of Grey held. Assume that no synergistic benefits are expected.

a. Complete the following table:

Blue Oil Grey Plastics Combined
Sales (in millions) 500 125
Earnings after taxes (millions) 60 13
Common shares outstanding (m) 16 4
Earnings per share 3.75 3.25
Common stock (price per share) 41.25 26
Price-Earnings ratio 10.0

b. Calculate the premium percentage received by Grey stockholders

Assume both that immediate synergistic earnings of $3 million per year will occur as a result of the merger and that the P/E ratio of the combined companies is 10.5

c. Rework part A
d. Rework part B

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Solution Summary

This discusses and provides the steps to compute the financials after merger. The earnings after tax are determined.

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The Blue Oil Corporation and the Grey Plastics Company have agreed to a merger. The Grey Plastics stockholders will receive .75 shares of Blue for each share of Grey held. Assume that no synergistic ...

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