Question
Ameritech Limited and Agritech Limited are in the same Industry. The former is in negotiation for acquisition of the latter. Important information about the two
Ameritech Limited and Agritech Limited 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:
|
| Ameritech | Agritech |
| Rs.10 Equity Shares Outstanding (Rs. Lakhs) | 15 | 8 |
| 9% Debentures (Rs. Lakhs) | 600 | - |
| 12% Institutional Loan (Rs. Lakhs) | - | 280 |
| EBIDTA (Rs. Lakhs) | 450 | 130 |
| EBIT | 420 | 110 |
| Tax rate | 25% | 30% |
| Market Price per share (Rs. Per share) | 250 | 120 |
Required:
- Determine the Maximum exchange ratio acceptable to Ameritech at various P/E ratios
- Determine the Minimum exchange ratio acceptable to Agritech at various P/E ratios
If Ameritech is willing to offer a 20% premium to Agritech in a stock-based acquisition, determine the EPS dilution or accretion from this offer.
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