Assume the exchange of Schoettler shares for Stevens shares as outlined in Problem 2.
a. What is the share exchange ratio?
b. Compare the earnings per Stevens share before and after the merger. Compare the earnings per Schoettler share. On this basis alone, which merger group fared better? Why?
c. Why do you imagine that Schoettler commanded a higher P/E ratio than Stevens? What should be the change in P/E ratio resulting from the merger? Does this conflict with what you previously concluded? Why?
d. If the Schoettler Company were in a high-technology growth industry and Stevens made cement, would you revise your answers?
e. In determining the appropriate P/E ratio for Schoettler, should the increase in earnings resulting from this merger be added as a growth factor?