This study presents a comprehensive model describing the post-merger performance of a combined firm based on a fundamental ROE equation. The model suggests that post-merger performance is an integrated function composed of relative size, price to book ratio, synergy, cost of equity and book value change, rather than a simple linear combination of factors. The model is consistent with previous empirical results about the nature of acquirers and targets. Empirical tests are also provided to show the consistency between the model and the market response.