Majan Group is considering the acquisition of Mazoon Company in which Mazoon Company would receive OMR 66.50 for each share of its common stock. The Majan Group does not expect any change in its price/earnings multiple after the merger. Majan Group is considering either undertaking the acquisition either through a stock for stock transaction, an all-cash transaction or in a stock and cash transaction. Majan Group intends to borrow the cash involved in the transaction in an interest only loan at an annual rate of 6% with the principal to be repaid as a in 15 years. If the stock and cash transaction is to be considered, Majan Group will pay a purchase price of one share of its stock plus a cash amount equal the difference between the offer share price and the target's share price. The marginal tax rate of Majan Group is 40%.Majan Group Mazoon CompanyEarnings available for common stockOMR 184,450OMR 38,150Number of shares of common stock outstanding81,90024,500Market price per shareOMR 63.25OMR 49.25Using the information provided above on these two firms and showing your work, calculate the following: answer the following questions:a. What is the purchase price premium in this acquisition? (hint: as a percentage of the target’s price)b. Using the post-merger share price and post-merger EPS compared to the pre- merger figures, what type of transaction should Majan Group consider?
Majan Group is considering the acquisition of Mazoon Company in which Mazoon Company would receive OMR 66.50 for each share of its common stock. The Majan Group does not expect any change in its price/earnings multiple after the merger. Majan Group is considering either undertaking the acquisition either through a stock for stock transaction, an all-cash transaction or in a stock and cash transaction. Majan Group intends to borrow the cash involved in the transaction in an interest only loan at an annual rate of 6% with the principal to be repaid as a in 15 years. If the stock and cash transaction is to be considered, Majan Group will pay a purchase price of one share of its stock plus a cash amount equal the difference between the offer share price and the target's share price. The marginal tax rate of Majan Group is 40%.
Majan Group Mazoon Company
Earnings available for common stock
OMR 184,450
OMR 38,150
Number of shares of common stock outstanding
81,900
24,500
Market price per share
OMR 63.25
OMR 49.25
Using the information provided above on these two firms and showing your work, calculate the following: answer the following questions:
a. What is the purchase price premium in this acquisition? (hint: as a percentage of the target’s price)
b. Using the post-merger share price and post-merger EPS compared to the pre- merger figures, what type of transaction should Majan Group consider?
Step by step
Solved in 7 steps with 7 images
