In these days, investors are in the habit of paying a high premium for companies involved in a merger, in the belief that a merger would strengthen the competitive position of the companies.


Whether or not a merger will work out actually depends on a lot of things. To say that every combination of companies will be a good thing is tantamount to saying that every marriage will have a happy end.

The acquisition of Continental Electronics Manufacturing by Ling-Altec Electronics provides us with an excellent pattern for analyzing other mergers and acquisitions. According to Ling’s President, James J. Ling, this acquisition will increase Ling’s backlog by a staggering 425 percent and sales by 85 percent. Each share of Ling-Altec common before the combination was expected to generate about $26 in sales for 1960.

It may be justified to pay a high premium for an electronics concern, which eventually would increase per-share earning power. How will the merger affect per share earnings?

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