B Limited is intended to acquire T limited by merger and the following
information is available in respect of the companies:
Particulars B Ltd T Ltd
No of shares 500,000 300,000
Earnings after tax 2,500,000 900,000
Market Value per share 21 14
Pre Merger EPS 5 3
If the proposed merger takes place, what will be the new EPS of X Limited
assuming that the merger takes place by exchange of equity shares and
exchange ratio (swap ratio) is based on current market price.
Assumed Synergy 0
New earnings per share 4.86
Mergo Ltd. Wishes merge with Amalgam Ltd. The following are the balance sheets of both the
companies as on appointed date of the scheme.
Liabilities Amalgam Mergo Assets Amalgam Mergo
Equity Shares capital of Rs. 10 each 10000 2100 Net Fixed Assets 14000 6500
Reserves and Surplus Investments 4500 500
Share Premium 2000 500 Current Assets 12000 3000
General Reserves 8000 2000 Misc. Exp 1000 500
P&L Account 1500 400
Long term Borrowings 6000 3500
Current Liabilities 4000 2000
TOTAL 31500 10500 31500 10500
Under the scheme of the merger, the share swap ratio has been fixed at 1:3 whereby one share in
Amalgam would be issued for every three shares held in mergo. In addition, shareholders of mergo
will be paid cash consideration of Rs. 1500. The fair value of Amalgum share is Rs. 25 per share.
The assets and Liabilities of mergo have to be considered as per the revaluation shown as under:
Fixed Assets 6000
Investments 700
Current Assets 2700
Current Liabilities 2100
Long term Liabilities 3700
Prepare the Balance sheet of Amalgam Ltd. after the merger.
Mergo Ltd. Wishes merge with Amalgam Ltd. The following are the balance sheets of
both the companies as on appointed date of the scheme.
Liabilities Amt Assets Amt
Equity Shares capital of Rs. 10 each 10700 Net Fixed Assets 20000
Reserves and Surplus Investments 5200
Capital reserves 350 Current Assets 13200
Share Premium 3050 Misc. Exp 1000
General Reserves 8000
P&L Account 1500
Long term Borrowings 9700
Current Liabilities 6100
TOTAL 39400 39400
No of Shares of Mergo 210
No of Shares Mergo Sh. Holder will get in Amalgam 70
Total value of assets of mergo at agreed value 9400
(-) Total value of outside liability 5800
(-) Purchase consideration paid to mergo Sh. Holdrs 3250
Net gain to amalgam 350
B Ltd planning to merge with T Ltd. B ltd projected that the recurring annual pretax cost saving of 5
crore starting from 2021 this cost reduction would rise from reductions in administrative, R&D, &
marketing cost. They also projected total revenue loss of 2 crore starting in the same year as a
result of consolidation of product lines and other merger cost.
The firms profit margin is 20% the tax rate is 30% and the discount rate is 15%. Synergy will grow at
the rate of inflation i.e . 4%.
What is the NPV of annual synergy as of 2019?
Calculate the maximum value B ltd should pay to T Ltd for this deal.
Co No of Sh. O/S Market Price
B Ltd 25,000,000 40
T Ltd 10,000,000 30
PROFIT MARGIN 20%
Tax 30%
Discount Rate 15%
Synergy Growth Rate 4%
2019 2020 2021
Sales Loss 0 -2
PROFIT Margin loss due to less Revenue -0.4
Cost Savings leading to Profit Gain 0 5
OVERALL PROFIT GAIN 4.6
Post Tax Profit Gain 3.22
Synergy Gain in 2021 3.22
PV of Future Synergy Gains C(1+g)/r-g 30.44
25.45 33.66
Synergy
Max Value that should be paid is Current Current Mkt Value (In CRORES
Value + PV Expected of Synergy Gains (in crores) crores)
30.00 25.45 55.45
Aggressive Corp is planning to aquire Lazy Corp. in a merger transaction. Calculate Aggressive's post-merger EPS and determin
the merger created economic gains
Aggressive Corp Lazy Corp Aggressive Corp Post Merger
Stock Price 150 90 150
EPS 10 8 10.36
P/E 15 11.25 14.48
Shares Outstanding 50,000 10,000 56,000
Total Earnings 500,000 80,000 580,000
Market Cap 7,500,000 900,000 8,400,000
New Shares Old Shares
Swap 3 for 5 shares 6,000 10,000
post-merger EPS and determine whether
Assume there 10 firms in the industry each with 10% market share also assume that 9 and 10 form decided too merge.
calculate the pre merger post Merger Herfindahl-Hirschman Index and discuss the likelihood of an antitrust challenge of
the merger.
Firm 1 Firm 2 Firm 3 Firm 4 Firm 5 Firm 6 Firm 7 Firm 8 Firm 9
Pre Merger 100 100 100 100 100 100 100 100 100
Firm 1 Firm 2 Firm 3 Firm 4 Firm 5 Firm 6 Firm 7 Firm 8 Firm 9
Post Merger 100 100 100 100 100 100 100 100 400
Assume there 4 firms in the industry each with 25% market share also assume that 3 and 4 form decided too merge.
calculate the pre merger post Merger Herfindahl-Hirschman Index.
Firm 1 Firm 2 Firm 3 Firm 4
Pre Merger 625 625 625 625 2500
Firm 1 Firm 2 Firm 3
Post Merger 625 625 2500 3750
1250 Yes
decided too merge.
ntitrust challenge of
Firm 10
100 1000
1200
200
cided too merge.
ABC Ltd is considering acquiring XYZ Ltd. ABC analysis have determined that a two-stage FCFF model is appropriate for their an
form income statement and other financial data shown in the tables. Calculate XYZ free cash flow and estimate the XYZ value
relevant WACC is 10%, tax rate is 30% and terminal growth rate is 2%.
Estimated Income statement and
2020 2021 2022 2023 2024
other financial items (000s)
Revenue 5000 6000 7000 8000 9000 Free cash flow
Depreciation 100 200 300 400 500 Discounted FCF
Net Interest 200 400 600 800 1000 Terninal value
Tax 100 200 300 400 500 PV of Terminal value
Net Income 1000 2000 3000 4000 5000 Value of Target firm
Change in W.C 100 200 300 400 500
Change in CapEx 400 800 1200 1600 2000
An investment banker was being hired by a client for valuing a company i.e Lee Ann Ltd. which is to be acquired by its client. H
comparable firm and recent acquisitions shown in the following figure to help him in the analysis. calculate the appropriate va
those metrics estimate the price that should be paid for acquiring Lee Ann Ltd by his client. The estimated takeover premium b
Company Statistics Lee Ann Ltd Firm 1 Firm 2 Firm 3
CMP 50 100 200 Firm 1
EPS 10 5 9 21 P/E 10
BVPS 30 25 45 110 P/BV 2
Free Cash Flow per share 20 50 90 205 P/FCF 1
Sales per Share 100 500 950 2050 P/S 0.1
In the above problem the investment banker was being asked to value Lee Ann Ltd. on the basis of compatible transaction ana
comparable transactions and recent acquisition shown in the following figure to help him in analysis. Estimate the price that s
Company Statistics Lee Ann Ltd Firm 1 Firm 2 Firm 3
Deal Price per share 50 100 200 Firm 1
EPS 10 10 20 40 P/E 5
BVPS 30 25 45 110 P/BV 2
Free Cash Flow per share 20 50 90 210 P/FCF 1
Sales per Share 100 500 900 2100 P/S 0.1
el is appropriate for their analysis, and they have developed the pro-
and estimate the XYZ value as of Jan 2020 using DCF analysis. The
2020 2021 2022 2023 2024
Free cash flow 740 1480 2220 2960 3700
Discounted FCF 7882.9153
Terninal value 47175
PV of Terminal value 29291.963
Value of Target firm 37174.879
o be acquired by its client. He has gathered information on
calculate the appropriate valuation metrics and using the mean of
timated takeover premium based on synergy is 20%.
Firm 2 Firm 3 Average Val* av Mul
11.11111 9.52381 10.21164 102.11640212
2.222222 1.818182 2.013468 60.404040404
1.111111 0.97561 1.028907 20.578139115
0.105263 0.097561 0.100941 10.094137783
48.298179855
57.957815826
compatible transaction analysis. He has gathered information on
is. Estimate the price that should be paid for acquiring Le Ann Ltd.
Firm 2 Firm 3 Average Val* av Mul
5 5 5 50
2.222222 1.818182 2.013468 60.404040404
1.111111 0.952381 1.021164 20.423280423
0.111111 0.095238 0.102116 10.211640212
35.25974026
T Ltd. and A Ltd. are negotiating on friendly acquisition of T Ltd. By A Ltd. the management team of both
companies have agreed upon transaction value of about $100 Per share for T Ltd. Stock. But presently they
are negotiating on alternative method of payment. An investment banking firms representing A Ltd. has
compiled the data in the following figure to analyse the transaction. Calculate the post-merger value of the
combined firm, gains according to the target and gain acquired to the acquirer under the following
conditions.
Case 1) cash offer of $100 per share for T Ltd. Stocks
Caser 2) stock offer of 0.66 shares of A Ltd stock on per share of T Ltd.
Pre-Merger stock price
No of Shares O/S (mn)
Pre-Merger Market value (mn)
Estimated NPV of synergy benefits
Cash Given
Total Cash Used
Value of Combined Entity
Gain for TARGET FIRM (Pt/Cash - Vt)
Gain for Acquring Firm (Vat-Va)
Gain to Acquirer from Synergies (Synergy -Premium Paid for Synergy acquisition)
(in Millions)
A Ltd. ($) T Ltd. ($) A Ltd
$150 $80 150
100 50 100
$15000 $4000 15000
$3000 3000
100
5000 Value of Combined Entity
17000 Per Share Price
Per Share Total Gain for TARGET FIRM (Pt/Cash - Vt)
20 1000 Gain for TARGET FIRM (in terms of total value)
Gain for Acquring Firm (Vat-Va)
Post Acquisition
Price Total TOTAL Gain
20 2000
###
2000
(in Millions)
T Ltd
80
50
4000
0
22000 Shares 33
165.41
Per Share Total 80
29.17 1458.65
otal value) 1458.6466165
Total TOTAL Gain
15.41 1541.35
