Question
A Ltd & B Ltd are contemplating a merger deal in which A Ltd. will acquire B Ltd. The relevant information about the firms is
A Ltd & B Ltd are contemplating a merger deal in which A Ltd. will acquire B Ltd. The relevant information about the firms is given as follows: A B
| Market price per share (Rs.) | 4 | 15 |
| Total earning (Rs. Mn) | 48 | 15 |
| Number of outstanding shares(Mn) | 10 | 7 |
| Earnings per share (Rs./Sh) | 8 | 4 |
| Price earnings ratio (X) | 38 | 7 |
Set 1: P/E of the combined firm is expected to be 7x (a) What is the maximum exchange ratio acceptable to the shareholders of A Ltd.? (b) How much synergy is being generated with such PE? (c) What is the minimum exchange ratio acceptable to the shareholders of B Ltd.? (d) Would the merger happen in such a situation? Set 2: P/E of the combined firm is expected to be 8x (a) What is the maximum exchange ratio acceptable to the shareholders of A Ltd.? (b) How much synergy is being generated with such PE? (c) What is the minimum exchange ratio acceptable to the shareholders of B Ltd.? (d) What shall be the price range between which the merger shall happen? Set 3: P/E of the combined firm is expected to be 10x (a) What is the maximum exchange ratio acceptable to the shareholders of A Ltd.? (b) How much synergy is being generated with such PE? (c) What is the minimum exchange ratio acceptable to the shareholders of B Ltd.? (d) What shall be the price range between which the merger shall happen?
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Focus On Personal Finance An Active Approach To Help You Develop Successful Financial Skills
Authors: Jack Kapoor, Les Dlabay, Robert Hughes
4th Edition
0078034787, 978-0078034787
