View All num of num See all Photos J.P. Morgan This employer has taken extra steps to respond to reviews and provide job seekers with accurate company information, photos, and reviews. Interested for your company?Learn More. www.jpmorganchase.com Work in HR? Unlock Free Profile Overview Reviews Salaries Interviews Jobs Photos Benefits 4.7k Reviews 14k Salaries 2.6k Interviews 4.8k Jobs Follow Add Review or Salary Follow Add Review or Salary Interview Question Investment Banking Associate Interview New York, NY J.P. Morgan Pre-deal situation BuyCo plans to acquire 100% shares of SellCo in a stock-for-stock transaction. BuyCo has a net income of $300,000 and 100,000 shares outstanding Market shareprice of BuyCo is $50.0 Pre-deal EPS = $3.0 Pre-deal P/E = 16.7x SellCo has a net income of $100,000 and 50,000 shares outstanding Market shareprice of SellCo is $60.0 Pre-deal EPS = $2.0 Pre-deal P/E = 30.0x The deal BuyCo agrees to pay a premium for control of 30%, so the offer price for one SellCo share is 1.3*$60.0 = $78.0 Stock-for-stock exchange ratio is $78/$50 = 1.56 of BuyCo shares for one SellCo share BuyCo issues 1.56*50,000 = 78,000 new shares to exchange them for all the SellCo shares outstanding Total shares of NewCo = 100,000 (pre-deal shares of BuyCo) + 78,000 (new shares) = 178,000 shares NewCo expected EPS = Total net income/Total shares outstanding = ($300,000+$100,000)/178,000 = $2.25 NewCo expected shareprice = (P/E of BuyCo)*(expected EPS) = 16.7x*$2.25 = $37.45 Post-deal situation EPS of NewCo fall from $3.0 to $2.25, so the deal is 25% dilutive for BuyCo shareholders BuyCo shareholders own 100,000/178,000 = 56.18% of NewCo SellCo shareholders own 78,000/178,000 = 43.82% of NewCo http://en.wikipedia.org/wiki/Accretion/dilution_analysis Tags: See more , See less 8 Answer Add Tags Flag as Inappropriate Thank you! Your feedback has been sent to the team and we'll look into it. Oops! We're sorry but your feedback didn't make it to the team. Your input is valuable to us — would you mind trying again? Send Answer Interview Answer 1 Answer ▲ 1 ▼ I got hung up on th math Interview Candidate on Sep 27, 2012 Flag as Inappropriate Thank you! Your feedback has been sent to the team and we'll look into it. Oops! We're sorry but your feedback didn't make it to the team. Your input is valuable to us — would you mind trying again? Send Add Answers or Comments To comment on this, Sign In or Sign Up.