Who asked: the head of corporate development at Atherton Brands, a listed food company (made up for practice, like Wexley Foods and all the figures). Atherton plans to offer a 45% premium for Wexley, mostly in Atherton shares. The board wants to see what the deal does to earnings per share over three years.
The data: both share prices and counts, the premium, the stock and cash mix, the debt rate, the tax rate, the cash Atherton will use, and three years of each company's net income with the planned synergies.
What done looks like: the offer and its funding, pro forma net income and EPS for 2026 to 2028, accretion or dilution each year, the synergies needed to break even, and a one-line verdict.
A merger model answers one board question: what does the deal do to our earnings per share? You build it in ten steps on one sheet:
- the offer price and purchase price;
- the funding: new shares and new debt;
- synergies after tax;
- financing costs: interest on new debt and interest lost on cash, after tax;
- pro forma net income;
- the buyer's EPS on its own;
- pro forma EPS;
- accretion or dilution, year by year;
- the synergies needed to break even;
- the verdict.
Deals are often dilutive in year 1 and accretive later, because synergies take time to arrive while the new shares and the interest start on day one. Showing each year, not just one, is what makes the model honest.