Merger & Acquistions Including Corporate.pdf

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CAFC INTER CA FINAL CA FINAL CA REVISION NOTES MAY '19 Strategic Financial Management Mergers & Acquisitions /officialjksc Jkshahclasses.com/revision Including Corporate Valuation
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J.K.SHAH CLASSES FINAL C.A. – STRATEGIC FINANCIAL MANAGEMENT : 1 : REVISION NOTES – MAY ‘19 Q.1. A Ltd. is keen or reporting an earning per share of ` 6 after acquiring T Ltd. The following financial data are given : A Ltd. T Ltd. EPS Market price per share No. of shares ` 5 ` 60 10,00,000 ` 5 ` 50 8,00,000 There is an exected synergy gain of 5%. What exchange ratio will result in post - merger EPS of ` 6 for A Ltd.? Q.2. You have been provided the following financial data of two companies : T Ltd. A Ltd. Earnings after taxes Equity shares outstanding Earnings per share Price - earnings (P / E) ratio Market price per share ` 7,00,000 2,00,000 3.50 10 times ` 35 ` 10,00,000 4,00,000 2.50 14 times ` 35 Company A is acquiring the Company T, exchanging its shares on a one to one basis for Company T's shares. The exchange ratio is based on the market prices of the shares of the two companies. (i) What will be the EPS subsequent to merger ? (ii) What is the change in EPS for the shareholders of companies A and T ? (iii) Determine the market value of the post - merger firm. P.E. Ratio is likely to remain same. (iv) Ascertain the profits accruing to shareholders of both the firms. (v) T Ltd. wants to be sure that it's shareholders' earnings will not be dimished by the merger. What should be the exchange ratio in that case? (vi) Determine gain (loss) for shareholders of the two companies after acquisition. Q.3. T Ltd. and E Ltd. are in the same industry. The former is in negotiation for acquisition of the latter. Important information about the two companies as per their latest financial statements is given below: T Ltd. E Ltd. ` 10 Equity shares outstanding Debt: 10% Debentures ( ` Lakhs) 12.5% Institutional Loan ( ` Lakhs) Earnings before interest, depreciation and tax (EBIDAT) ( ` Lakhs) Market Price/share ( ` ) 12 Lakhs 580 -- 400.86 220.00 6 Lakhs -- 240 115.71 110.00 T Ltd. plans to offer a price for E Ltd., business as a whole which will be 7 times EBIDAT reduced by outstanding debt, to be discharged by own shares at market price. E Ltd. is planning to seek one share in T Ltd. for every 2 shares in E Ltd. based on the market price. Tax rate for the two companies may be assumed as 30%. Calculate and show the following under both alternatives - T Ltd.'s offer and E Ltd.'s plan: (i) Net consideration payable. (ii) No. of shares to be issued by T Ltd. (iii) EPS of T Ltd. after acquisition. (iv) Expected market price per share of T Ltd. after acquisition. (v) State briefly the advantages to T Ltd. from the acquisition. Calculations (except EPS) may be rounded off to 2 decimals in lakhs. MERGERS & ACQUISITIONS INCLUDING CORPORATE VALUATION
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J.K.SHAH CLASSES FINAL C.A. – STRATEGIC FINANCIAL MANAGEMENT : 2 : REVISION NOTES – MAY ‘19 Q.4. The shares of Nisha Ltd., are currently being traded for ` 24 per share. The top management together with their families control 40% of the 10 lakh shares outstanding.
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