Mergers & Acquisition

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1.

Geo Corporation, a privately held company, has developed a special weight –

loss programme called the Goan Diet. It has 1.5 million shares outstanding and
debt of Rs. 36 million. Comparable companies have a WACC of 9%. Balance
sheet and P & L account for the latest year (year 0) is given below:

Balance Sheet (Rs. Million)

Net Worth 41.1 GFA 95
Debt 36 Less: Depreciation 29 66
Net Current Assets 11.1
Total 77.1 Total 77.1

Profit & Loss Statement (Rs million)

1. Sales 83.6
2. Less: Cost of goods sold 63.1
3. EBITDA (1-2) 20.5
4. Depreciation 3.3
5. EBIT (3-4) 17.2
6. Tax @ 35% 6.0
7. Profit After Tax 11.2

Following assumptions can be made for the projection of financials:

1. Sales will grow at 7% per year for the next 3 years, and then slow at 4%
for years 4 to 6, and to 3% starting in year 7.
2. COGS will be 74% of sales in the first year. It will increase by 0.25% point
for each of the next 6 years. It will settle at 75.5% starting in year 7.
3. Data for Year 0 & projections for FA & NWC for next 7 year are given:

0 1 2 3 4 5 6 7

Gross fixed assets 95.0 109.6 125.1 141.8 156.8 172.4 188.6 204.5
Less accumulated
depreciation 29.0 38.9 49.5 60.8 72.6 84.9 97.6 110.7
Net fixed assets 66.0 70.7 75.6 80.9 84.2 87.5 91.0 93.8
Net working capital 11.1 11.6 12.4 13.3 13.9 14.4 15.0 15.4

Based on the assumptions mentioned above, calculate the price per share.
2.

Compute the value of Target Ltd., with the help of comparable firms, using
following information of Target Ltd.:

(Rs. Crores)
Sales 100
Book Value 60
Profit After Tax 15

Details of comparable firms are as follows: (Rs. Crores)

XXX Ltd YYY Ltd ZZZ Ltd

Sales 80 120 150
Profit After Tax 12 18 25
Book value 40 90 100
Market Value 120 150 240

The valuer feels 50% weightage should be given to earnings in the valuation
process, and sales and book value may be given equal weightage.