# Acquirer's Gain from Merger

This is just a quick question. When it comes to the formula for an acquirer’s gain: Gain = Synergies - Merger Premium … is that only if the premium is paid in cash. So if it is a 100% stock purchase, and the purchase is at a premium … is the gain just the synergies? Thanks (that is the stalla formula, not sure if schweiser is different)

i need to do a review of this session, but i have on my notecards that in a cash deal, GAINacquirer = synergies - (px paid for target - pre-merger value of target) in a stock deal, the px paid for target = (number of new shrs target receives x px per share of the combined firm after the merger announcement) so the answer to your question above is no- you don’t just get all of the synergies regardless of what kind of premium you pay for the acquiree with a stock deal. you still have to figure out that takeover/merger premium… just calc’d a bit differently with a stock deal. hope that helps- i need to bang through some problems on these. there were 2 q’s last year on the test about mergers and they were calculation q’s… definitely testable stuff.

>bannisja >1. GAINacquirer = synergies - (px paid for target - pre-merger value of target) >2. px paid for target = (number of new shrs target receives x px per share of the combined firm after the merger announcement) This is exactly what you need. Valuation of a Merger in a stock based transaction is more messy with formulas than cash based transaction. Since you need to calculate the Value of the combined firm (Vat), then divide by the new NOSO to get Price per stock (Pat). Then to find the amount that was dispatched to the target shareholders, you need to multiply the new Pat with the new shares that you had initially issued for this merger (because by taking the Pat, the target shareholders are sharing the gain and/or the pain what ya) and finally the gain to the acquiere will be the synergies unlocked by the transaction, net of the excess value over price you paid to get the target onboard.

cheros16 Wrote: ------------------------------------------------------- > This is just a quick question. > > When it comes to the formula for an acquirer’s > gain: > Gain = Synergies - Merger Premium … > > is that only if the premium is paid in cash. So if > it is a 100% stock purchase, and the purchase is > at a premium … is the gain just the synergies? > > Thanks > > (that is the stalla formula, not sure if schweiser > is different) NOpe, it is also synergies - merger premium in the case of a stock purchase. But in the case of a stock acquisition, you need to account for stock dilution when you are calculating the premium

and there is a good question cfai with a part cash part stock issuance purchase…

Thanks guys What was confusing me was this quote from the Stalla readings, “Note also that the acquiring company’s gain from the merger only decreases if the acquirer pays the takeover premium in cash”