FINANCE FOR STRATEGIC DECISIONS MERGER AND ACQUSOTION

FORMULAES Notes: Here, Co A= Acquiring company Co T= Target Company Co M = Merged Company 1) No of shares issued to the Co T= No of shares of Co T exchange ratio

2) Exchange Ratio or Swap Ratio based on MP=

MPS of Co T MPS of Co A

3) Price Earning ratio=

MPS EPS

PE ratioit shows how much investors are willing to pay per Rupee of earnings. It is also known as multiple

4) EPS of Co M=

Total Earnings total no ogf shares of Co M

5) equivalent EPS of Co T=

EPS of Co M* Exchange ratio

6) MPS of Co M=

MPS of Co A*EPS of Co M EPS of Co A

7) Apportionment Of Gain /Loss from Merger=

Market Value Post Merger Less: Market Value Pre Merger

Here, Market Value post Merger= New No of shares * MPS of Co M Market Value pre merger= Old no. Of shares * MPS of Co A or MPS of Co T as the case may be Market Value= No of shares* MPS

8) Range of minimum and maximum sahre ratio between the firms= For maximum ratio: Amt

Step Step Step Step

1 2 3 4

Assume that total gains are accruing to Co T Find the total market Value of the Co M Less: Pre merger market value of Co A Remaing amoumt is the post merger value of Co T

X Less Y Z

Step 5 Thus MPS Of Co A =

Y No of shares of Co A Z/ W which is equal to V

Step 6 No of shares to be issues to Co T= Step 7 Maximum exchange ratio =

V/ old no of shares of Co T

For minimum ratio: Step 1 Assume that total gains are accruing to Co A Step 2 Find the total market Value of the Co M Step 3 Less: Pre merger market value of Co T Step 4 Remaing amoumt is the post merger value of Co A

Amt X Less Y Z

Step 5 Thus MPS Of Co A =

Z No of shares of Co A Y/ W which is equal to V

Step 6 No of shares to be issues to Co T= Step 7 Minimum exchange ratio =

V/ old no of shares of Co T

9) PE ratio used in acquring the Co T=

Market price of shares offerd to Co T Current EPS of Co T

Here,market price offerd to Co T=(actual swap ratio used/swap ratio based on market price)*Curre

or PE Ratio of Co A * EPS of Co M

re Merger

o T as the case may be

which is equal to W

es of Co A

which is equal to V

f shares of Co T

which is equal to W

es of Co A

which is equal to V

f shares of Co T

ce of shares offerd to Co T

ased on market price)*Current MPS of Co T