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Mars is acquiring Neptune for $768,000 in cash. Mars has 40,000 shares of stock outstanding at...

Mars is acquiring Neptune for $768,000 in cash. Mars has 40,000 shares of stock outstanding at a market value of $38 a share. Neptune has 22,000 shares of stock outstanding at a market price of $32 a share. Neither firm has any debt. The net present value of the acquisition is $96,000. What is the price per share of Mars after the acquisition?

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Answer #1

Net Integration Gain from Acquisition = Synergy Gain (NPV of Acquisition) - Premium Paid on acquisition

Net Integration Gain from Acquisition = 96000 - (768000-22000*32)
Net Integration Gain from Acquisition = 96000 - (768000-704000)
Net Integration Gain from Acquisition = 96000 - 64000
Net Integration Gain from Acquisition = 32000

Per Share Gain for Mars = 32000/40000 = 0.80

Price per share of Mars after the acquisition = Current Price + Gain on integration
Price per share of Mars after the acquisition = 38 + 0.80
Price per share of Mars after the acquisition = $ 38.80

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