Buyer: $50,000,000 net income, 10,000,000 shares, $50.00 share price (standalone EPS $5.00). Target: $10,000,000 net income, 3,000,000 shares, $25.00 share price, 20% offer premium. Deal terms: 40% cash consideration (split evenly between cash and new debt in this model), 6.5% debt interest rate, 3.0% foregone cash interest rate, $2,000,000 pre-tax synergies, 21% tax rate.
Purchase price: 3,000,000 shares × $25.00 × 1.20 premium = $90,000,000.
Financing split: $18,000,000 in new debt, $18,000,000 in cash, and $54,000,000 in new stock — which at the buyer's $50.00 share price means issuing 1,080,000 new shares.
After-tax financing costs: debt interest costs ≈ $924,300 after tax; foregone interest on the cash used ≈ $426,600 after tax.
Pro forma net income: $50,000,000 + $10,000,000 + $2,000,000 (synergies) − $924,300 − $426,600 ≈ $60,649,100.
Pro forma shares: 10,000,000 + 1,080,000 = 11,080,000.
Pro forma EPS: $60,649,100 ÷ 11,080,000 ≈ $5.47 — up from the buyer's standalone $5.00, an accretion of roughly +9.47%.
Because the deal is already accretive, the synergy break-even calculation shows a negative required synergy (roughly −$3,249,100), meaning this transaction would still be accretive even with about $3.2 million less in synergies than assumed.