Will a share-funded merger lift EPS?
Merger and EPS · 12 min · Fictional interview case
The situation
A listed buyer plans to pay for a smaller distributor by issuing shares. Management points to expected cost savings and tells the board earnings per share should rise immediately.
Check the claim with a simple full-year model. The board also wants to know how much of the result depends on savings being delivered.
- Buyer earnings / shares
- ₹90 crore / 9 crore shares
- Target earnings / savings after tax
- ₹20 crore / ₹8 crore
- New shares issued
- 3 crore
Your task
Is the transaction accretive, meaning does it raise earnings per share?
Reveal step-by-step solution
Find current earnings per share
₹90 crore ÷ 9 crore = ₹10 per share.
Build combined earnings and share count
Profit is ₹90 + ₹20 + ₹8 = ₹118 crore. Shares rise from 9 crore to 12 crore.
Compare before and after
₹118 ÷ 12 ≈ ₹9.83 per share, about 1.7% lower. This answers the EPS question. Evaluate whether the buyer overpaid separately.
Interviewer follow-up
What annual after-tax savings would produce exactly neutral EPS?
Compare your answer
₹10 × 12 crore shares requires ₹120 crore earnings. The two firms earn ₹110 crore together, so savings must reach ₹10 crore.