Problem
It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available ($ in millions except per share data):
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January 1, 2017 ($ in millions)
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Pegasus
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Chimera
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GAAP revenue
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$150.40
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$112.00
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GAAP net income
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$14.04
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$9.92
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Tax rate
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40%
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35%
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Assume all activities below occur on January 1, 2017:
You also obtained the following transaction-related data:
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Offer value
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$132.0 million in cash
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Sources of funds
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50% of the offer value funded using Pegasus's cash reserve, currently generating a 1% annual return. Remainder of the funds needed to complete the deal raised via a new 5-year debt issuance at 5% annual interest rate.
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Refinanced debt
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Chimera has $5 million in debt outstanding at 4% annual interest which will be refinanced as part of the acquisition
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Transaction fees
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$2 million pretax
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Financing fees
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$1 million pretax
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Cost synergies
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$2 million pretax. Apply the acquirer's tax rate on the cost synergies.
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Revenue synergies
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$1 million in additional revenue due to cross selling opportunities. Assume revenue synergies are subject to the acquirer's standalone tax rate and profit margin.
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Goodwill
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$20 million
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Asset write ups
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None
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What is the sum of all Pro forma Pre-tax Income acquisition adjustments pertaining to fees?