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    Ca Final SFM - New Scheme - Dawn 2022 - Merger - Acquisitions

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    Ankur Soni
    The document discusses two companies, TK Ltd. and SK Ltd., with TK Ltd. negotiating to acquire SK Ltd. It provides financial information for both companies and calculations for two acquisition scenarios: under TK Ltd.'s offer to pay 7 times SK Ltd.'s EBIDAT less debt, to be paid in TK Ltd. shares at market price; and under SK Ltd.'s plan to exchange 1 TK Ltd. share for every 2 SK Ltd. shares based on market price. It calculates considerations, shares issued, EPS, and expected market price for both companies under each alternative and lists advantages of the acquisition for TK Ltd. as synergies, cost reductions, operating efficiencies, and better market share.

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    Ca Final SFM - New Scheme - Dawn 2022 - Merger - Acquisitions

    Uploaded by

    Ankur Soni
    21 views8 pages
    The document discusses two companies, TK Ltd. and SK Ltd., with TK Ltd. negotiating to acquire SK Ltd. It provides financial information for both companies and calculations for two acquisition scenarios: under TK Ltd.'s offer to pay 7 times SK Ltd.'s EBIDAT less debt, to be paid in TK Ltd. shares at market price; and under SK Ltd.'s plan to exchange 1 TK Ltd. share for every 2 SK Ltd. shares based on market price. It calculates considerations, shares issued, EPS, and expected market price for both companies under each alternative and lists advantages of the acquisition for TK Ltd. as synergies, cost reductions, operating efficiencies, and better market share.

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    4. CA FINAL SFM _NEW SCHEME_ DAWN 2022 -MERGER _ ACQUISITIONS

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    The document discusses two companies, TK Ltd. and SK Ltd., with TK Ltd. negotiating to acquire SK Ltd. It provides financial information for both companies and calculations for two acquisition scenarios: under TK Ltd.'s offer to pay 7 times SK Ltd.'s EBIDAT less debt, to be paid in TK Ltd. shares at market price; and under SK Ltd.'s plan to exchange 1 TK Ltd. share for every 2 SK Ltd. shares based on market price. It calculates considerations, shares issued, EPS, and expected market price for both companies under each alternative and lists advantages of the acquisition for TK Ltd. as synergies, cost reductions, operating efficiencies, and better market share.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    21 views8 pages

    Ca Final SFM - New Scheme - Dawn 2022 - Merger - Acquisitions

    Uploaded by

    Ankur Soni
    The document discusses two companies, TK Ltd. and SK Ltd., with TK Ltd. negotiating to acquire SK Ltd. It provides financial information for both companies and calculations for two acquisition scenarios: under TK Ltd.'s offer to pay 7 times SK Ltd.'s EBIDAT less debt, to be paid in TK Ltd. shares at market price; and under SK Ltd.'s plan to exchange 1 TK Ltd. share for every 2 SK Ltd. shares based on market price. It calculates considerations, shares issued, EPS, and expected market price for both companies under each alternative and lists advantages of the acquisition for TK Ltd. as synergies, cost reductions, operating efficiencies, and better market share.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 8

    Strategic Financial Management (New Scheme) – Dawn Series

    Mergers, Acquisitions and Corporate Restructuring

    QUESTION 2

    TK Ltd. and SK Ltd. are both in the same industry. The former is in negotiation for
    acquisition of the latter. Information about the two companies as per their latest
    financial statements are given below:
    TK Ltd. SK Ltd.
    ` 10 Equity shares outstanding 24 Lakhs 12 Lakhs
    Debt:
    10% Debentures (` Lakhs) 1160 -
    12.5% Institutional Loan (` Lakhs) - 480
    Earnings before interest, depreciation and tax (EBIDAT) (` Lakhs) 800.00 230.00
    Market Price/Share (`) 220.00 110.00
    TK Ltd. plans to offer a price for SK Ltd. business, as a whole, which will be 7 times
    of EBIDAT as reduced by outstanding debt and to be discharged by own shares at
    market price.
    SK Ltd. is planning to seek one share in TK Ltd. for every 2 shares in SK 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 -TK Ltd.'s offer and SK
    Ltd.'s plan :
    i. Net consideration payable.
    ii. No. of shares to be issued by TK Ltd.
    iii. EPS of TK Ltd. after acquisition.
    iv. Expected market price per share of TK Ltd. after acquisition.
    v.State briefly the advantages to TK Ltd. from the acquisition.
    Calculations may be rounded off to two decimals points.

    Sanjay Saraf Sir Page 3


    Strategic Financial Management (New Scheme) – Dawn Se ries

    Mergers, Acquisitions and Corporate Restructuring

    ANSWER:
    As per TK Ltd.’s Offer

    (iv) Expected Market Price:

    Sanjay Saraf Sir Page 4


    Strategic Financial Management (New Scheme) – Dawn Se ries

    Mergers, Acquisitions and Corporate Restructuring

    As per SK Ltd.’s Offer

    (v) Advantages of Acquisition to TK Ltd.


    Since the two companies are in the same industry, the following advantages
    could accrue:
     Synergy, cost reduction and operating efficiency.
     Better market share.
     Avoidance of competition

    Sanjay Saraf Sir Page 5


    Strategic Financial Management (New Scheme) – Dawn Series

    Mergers, Acquisitions and Corporate Restructuring

    QUESTION 5
    C Ltd. & D Ltd. are contemplating a merger deal in which C Ltd. will acquire D Ltd.
    The relevant information about the firms are given as follows:
    C Ltd. D Ltd.
    Total Earnings (E) (in millions) `96 `30
    Number of outstanding shares (S) (in millions) 20 14
    Earnings per share (EPS) (`) 4.8 2.143
    Price earnings ratio (P/E) 8 7
    Market Price per share (P)(`) 38.4 15
    i. What is the maximum exchange ratio acceptable to the shareholders of C Ltd., if
    the P/E ratio of the combined firm is 7?
    ii. What is the minimum exchange ratio acceptable to the shareholders of D Ltd., if
    the P/E ratio of the combined firm is 9?

    Sanjay Saraf Sir Page 11


    Strategic Financial Management (New Scheme) – Dawn Se ries

    Mergers, Acquisitions and Corporate Restructuring

    ANSWER:
    i. Maximum exchange ratio acceptable to the shareholders of C Ltd.

    Let D be the no. of equity shares to be issued to D Ltd. then,

    D = 2.96875 Million Shares


    Exchange Ratio = 2.96875 / 14 = 0.212:1

    ii. Minimum exchange ratio acceptable to the shareholders of D Ltd.

    Let D be the no. of equity shares to be issued to D Ltd. then,

    D = 4.54545 Million Shares


    Exchange Ratio = 4.54545 / 14 = 0.325:1

    Sanjay Saraf Sir Page 12


    Strategic Financial Management (New Scheme) – Dawn Series

    Mergers, Acquisitions and Corporate Restructuring

    QUESTION 6
    Long Ltd., is planning to acquire Tall Ltd., with the following data available for both
    the companies:

    Long Ltd. Tall Ltd.

    Expected EPS ` 12 `5

    Expected DPS ` 10 `3

    No. of Shares 30,00,000 18,00,000

    Current Market Price of Share ` 180 ` 50

    As per an estimate Tall Ltd., is expected to have steady growth of earnings and dividends to
    the tune of 6% per annum. However, under the new management the growth rate
    is likely to be enhanced to 8% per annum without additional investment.

    You are required to:

    i. Calculate the net cost of acquisition by Long Ltd., if ` 60 is paid for each share of Tall
    Ltd.
    ii. If the agreed exchange ratio is one share of Long Ltd., for every three shares of Tall
    Ltd., in lieu of the cash acquisition as per (i) above, what will be the net cost
    of acquisition?
    iii. Calculate Gain from acquisition.

    Sanjay Saraf Sir Page 13


    Strategic Financial Management (New Scheme) – Dawn Se ries

    Mergers, Acquisitions and Corporate Restructuring

    ANSWER:
    i. Net cost of acquisition shall be computed as follows:

    ii. Net Cost of acquisition in case of exchange of shares:

    Alternatively, Net Cost of Acquisition can also be computed as follows:

    Sanjay Saraf Sir Page 14


    Strategic Financial Management (New Scheme) – Dawn Se ries

    Mergers, Acquisitions and Corporate Restructuring

    iii. Calculation of gain from acquisition:

    Sanjay Saraf Sir Page 15

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