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Dear John,
As in acquisition, if acquirer co buy a lower P/E ratio target company, the EPS will rise, is it right?
If so, how bootstrapping work if EPS rise, P assumed unchanged and as result the P/E shall fall so how bootstrapping try to boost the Predator P/E rise by acquiring the lower P/E, pls. clarify
Much thanksFirstly, although the total earnings will rise, the EPS won’t automatically rise – it depends whether shares were issued to acquire the target, and is so then how many. They will however want it to rise, and if they pay cash it certainly will rise.
Secondly. the market value will not stay unchanged – it will be the new PE times the new EPS.
Thirdly, applying the new PE on the earnings of the target company will mean that the target company becomes more valuable when it is part of the ‘group’.
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