Question

Acquisitions of publicly held corporations are mostly accomplished by cash purchases of stock. The use of cash to acquire a company results in several nontax advantages. When cash is used the target corporation’s shareholders in the transaction are not acquired. Please discuss the benefits of using cash for the purchase on earnings per share.

Answer 1

In the case of cash merger or acquisitions its true that target corporation"s shareholder is not acquired but the acquiring company gets ready to pay them their share price that they own.

Earning per share of the company is measured as Net income- preffered dividend / No. of outstanding shares

In case of acquisition no. of shares will not change but net profits might change depending on the target company or senergies

For eg: If two big companies like Kotak bank and ING vysya bank who has good fame come together than there will be increase is net profit which will increase Earning per share just because after this aquisition Kotak bank became 4th largest bank