Bootstrapping - Merger & Acquisition

CFA Level II Corporate Finance
#1

Dear all,

Am I right to say bootstrapping refer to share exchange between the acquier and the target (essentially the higher priced shares of acquirer in exchange for lower priced shares of target in a pre-determined share exchange ratio)? After the acquisition, both company shareholders continue to exist in the newly merged entity?

Thank you.

Cheers,

Ernest

#2

anyone?

#3

The driver is not the share price of the acquirer and the target; it’s the P/E ratios of the aquirer and the target. If the acquirer’s P/E ratio is higher than that of the target, the new EPS will be higher than the old EPS; if the acquirer’s P/E ratio is lower than that of the target, the new EPS will be lower than the old EPS.