The Scenario
A global retail corporation (Acquirer) plans to acquire a smaller specialty retail chain (Target) for $50,000,000 in a transaction funded 60% with new debt and 40% with stock. Acquirer has a share price of $50, shares outstanding of 10 million, and EPS of $4.00. Target has net income of $5,000,000. New debt will carry an interest rate of 6%. Acquirer expects to achieve $1,500,000 in pre-tax cost synergies. The acquisition team needs to build a model to determine if the deal is accretive or dilutive to the Acquirer's EPS in Year 1.
The Brief
Build a simplified M&A consolidation model. Compute the acquisition purchase price and funding mix. Calculate the new share count, target net income contribution, debt interest expense (after 21% tax), cost synergies (after 21% tax), consolidated net income, and pro-forma EPS. Determine accretion/dilution.
Deliverables
- M&A transaction structure summary (deal value, debt issued, new stock issued, share count impact).
- Pro-forma income statement adjustments table (Target Net Income, interest expense, tax adjustment, synergies).
- Accretion / Dilution calculation showing pro-forma EPS compared to standalone EPS.
- Synergy sensitivity table (what if synergies are only 50% achieved or transaction debt interest rate rises to 8%).
- Executive memo (max 500 words) advising the Board of Directors on deal feasibility and risk factors.
Submission Guidance
Submit the pro-forma financial calculations and sensitivity matrices using Markdown tables. Ensure all formulas and assumptions are fully explained in the accompanying board memo.
Submit Your Work
Your submission is graded against the rubric on the right. If you pass, you get a public Badge URL you can share on LinkedIn. There is no draft save, so work offline first and paste your finished response here.