Paypal was rumored to be in talks to acquire Pinterest for a 25% premium. Assume that the two companies reached agreement on that basis. Using the stock prices given below (assume that the premium will be applied to the Pinterest stock price and that the Paypal stock price given will be used to calculate the exchange ratio. Assume no synergies in either scenario. In the scenario where debt is used to pay for the acquisition, assume the interest rate on debt is 5% and that the effective tax rate is 22%. Assume the transaction is complete 1/1/22. All other information needed to complete the calculations should be obtained from Yahoo Finance.

Paypal stock price - 230

Pinterest stock price - 44

Scenario 1 - Paypal acquired Pinterest in an all stock transaction

1. What would be the exchange ratio in the transaction?

2. What would be the proforma eps for Paypal for 2022?

3. Is the transaction accretive or dilutive?

Scenario 2 - Paypal acquired Pinterest in an all cash (financed 100% with debt) transaction?

1. How much cash would be needed?

2. Assuming all of the cash needed is borrowed, what would be the proforma eps for Paypal in 2022?

Answer rating: 100% (QA)

To solve the calculations for the given scenarios we will follow the steps provided Scenario 1 All S... View the full answer