MBA183F4: Ramaiah

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MBA183F4

USN 1 M
RAMAIAH
Institute of Technology
(Autonomous Institute, Affiliated to VTU)
(Approved by AICTE, New Delhi & Govt. of Karnataka) Accredited by NBA & NAAC with ‘A’ Grade

SEMESTER END EXAMINATIONS – DECEMBER 2019


Program : Master of Business Administration Semester : III
Course Name : Mergers, Acquisitions and Corporate Restructuring Max. Marks : 100
Course Code : MBA183F4 Duration : 3 Hrs

Instructions to the Candidates:


 Answer one full question from each unit.
 PV tables may be provided.
 Question No.9 is Compulsory.

UNIT- I
1. a) State any three differences between horizontal merger and vertical CO1 (03)
merger.
b) Discuss primary reasons for unsuccessful outcomes of a merger. CO1 (07)
c) ‘Mergers and amalgamations are important strategic decisions leading CO1 (10)
to the maximisation of a company’s growth’. Do you agree? Discuss
possible reasons for merger.

2. a) Enlist any three differences between acquisition and amalgamation. CO1 (03)
b) Explain monopoly theory and its working usuing examples. CO1 (07)
c) Describe sequential steps involved in the process of a merger. CO1 (10)

UNIT – II
3. a) What is management buyout? CO2 (03)
b) ‘Takeover can be either friendly or hostile’. Explain different types of CO2 (07)
takeovers using examples.
c) Describe any two of the following defensive tactics: CO2 (10)
(i) Blank cheque (ii) Shark repellants (iii) scorched earth.
4. a) What you mean by Proxy fight in hostile acquisition? CO2 (03)
b) Explain any three successful takeover tactics in India. CO2 (07)
c) Discuss various activities which are not termed as corporate CO2 (10)
restructuring.

UNIT- III
5. a) What do you mean by financial synergy? CO3 (03)
b) Explain various methods of financing mergers. CO3 (07)
c) The following information is provided related to the acquiring firm Zenith Ltd. CO3 (10)
and the target firm Star Ltd.
Particulars Zenith Ltd. Star Ltd.
Profits after tax (Rs.) 2000 lakhs 400 lakhs
No. of outstanding shares 200 lakhs 100 lakhs
P/E ratio (times) 10 5
Required:
(i) What is the swap ratio based on current market price?
(ii) What is the EPS of Zenith Ltd. after acquisition?
(iii) What is the expected market price per share of Zenith Ltd. after
acquisition, assuming P/E ratio of Zenith Ltd. remains
unchanged?
(iv) Determine the market value of the merged firm.
(v) Calculate gain/loss for shareholders of the two independent
companies after acquisition.

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MBA183F4
6. a) What does relative valuation method consist of? CO3 (03)
b) “Relative valuation is not a commonly used valuation approach”. CO3 (07)
Discuss about relative valuation approach.
c) You have been provided the following financial data of two companies: CO3 (10)
Particulars Krishna Ltd. Rama Ltd.
Earnings after taxes (Rs.) 7,00,000 10,00,000
Equity shares outstanding (Rs.) 2,00,000 4,00,000
EPS 3.5 2.5
Price-earning ratio 10 times 14 times
Market price per share (Rs.) 35 35
Company Rama Ltd. is acquiring the company Krishna Ltd. exchanging
its share on a one-two-one basis of company Krishna Ltd.’s share. The
exchange ratio is based on the market prices of the shares of the two
companies.
You are required to calculate:
(i) The EPS subsequent to merger.
(ii) Change in EPS for the shareholders of Rama Ltd. and Krishna Ltd.
(iii) The market value of the post-merger firm
(iv) The profits accruing to shareholders of both the companies.
UNIT- IV
7. a) What is fair value of accounting? CO4 (03)
b) Discuss the salient features of SEBI takeover code. CO4 (07)
c) Rex Limited is interested in acquiring the cement division of Flex CO4 (10)
Limited. The planning group of Rex Limited has developed the
following forecast for the cement division of Flex Limited.

Year 1 2 3 4 5 6
Asset value 100 125 150 172.5 193.2 212.50
NOPAT 14 17.5 21 24.2 27.1 29.80
Net investment 20 22.5 22.5 24.2 24.1 25.3
Growth rate(%) 25 20 15 12 10 8
The growth rate from year 7 onward will be 8 percent. The discount
rate to be used for this acquisition is 15 percent, What is the value of
this acquisition?

8. a) List out the different methods for calculating purchase consideration. CO4 (03)
b) Explain any seven legal and regulatory provisions of M & A under CO4 (07)
Companies Act 2013.
c) Yan Company (the transferor company) and Yin Company CO4 (10)
(the transferee company) amalgamate in an exchange of stock to form
Yin - Yan Company. The pre-amalgamation balance sheets of Yin
Company and Yan Company are as follows:
Yin Company Yan Company
(Rs. in million) (Rs. in million)

Fixed assets 120 50


Current assets 240 80
Total assets 360 130

Share capital (Rs.10 face value) 150 40


Reserves and surplus 150 10
Debt 60 80
360 130
The exchange ratio fixed is one share for every two shares of transferor
company. The fair market value of the fixed assets, current assets and
debt of Yan Company was assessed at Rs.40 million , Rs.60 million and
Rs.90 million respectively. Prepare the post-amalgamation balance

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MBA183F4
sheet of Yin Yan Company under the 'pooling' and 'purchase' methods.

UNIT- V
9. Case Study : (Compulsory)

The following information has been extracted from the balance sheets
of P Ltd. and S Ltd. as on 31st March, 2012:

P Ltd. takes over S Ltd. on 1st April, 2012, and discharges


consideration for the business as follows:
(i) Issued 35 lakh fully paid equity shares of Rs 10 each at par to the
equity shareholders of S Ltd.
(ii) Issued fully paid 12% preference shares of Rs 10 each to discharge
the preference shareholders of S Ltd. at a premium of 10%.
It is agreed that the debentures of S Ltd. will be converted into equal
number and amount of 10% debentures of P Ltd.
You are required to show the balance sheet of P Ltd. assuming that:

Questions:
i) The amalgamation is in the nature of merger, and CO5 (10)
ii) The amalgamation is in the nature of purchase. CO5 (10)

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