Explain expected gain from the acquisitions
Hampshire- Cathway _HC) a large established corporation with no growth in its real earnings is considering acquiring 100% of the shares of Trilennium Corporation, a young firm with a high growth rate of earnings. The acquisitions analysis group at HC has produced the following table of relevant data.
ampshire Cathaway Trilennium
Earnings per share $3 $2
Dividend per share $3 $0.80
Number of shares 200 million 10 million
Stock Price $30 $20
HC's analysts estimate that investors expect growth of about 6% per year in Tirlenniums earnings and dividends. They assume that with the improvements in management that HC could bring to Trilennium, its growth rate would be 10% per year with no additional investments outlays beyond those already expected.
What is the expected gain from the acquisitions?
What is the NPV of the acquisition to HC shareholders if it costs an average of $30 per share to acquire all of the outstanding shares.?
Would it matter to HC's shareholders whether the shares of Trilennium stock are acquired by paying cash or HC stock?