Investment Banking

X ltd, manufacturer of cement wants to merge another Company for the purpose obtaining cost synergy

1) What factors will you consider while selecting a target for merger?
2) Finally after all analysis,you found a target company

Balance Sheet
Current Assets
Fixed Assets (Net)
Total
Equity capital
Retained earnings
14% long-term debt
Current liabilities
Total

Income Statement
Net Sales
Cost of Goods sold
Gross profit
Operating expenses
Interest
Earnings before taxes
Taxes @ 50%
Earnings after taxes (EAT)
Other Information
No. of Equity shares
Dividend Payout Ratio
Market Per Share

Determine whether the merger is beneficial for Y Ltd

he purpose obtaining cost synergy

All figures in Lacs

X Ltd Y Ltd
14 10
10 5
24 15
10 8
2 0
5 3
7 4
24 15

All figures in Lacs

X Ltd Y Ltd
34.5 17
27.6 13.6
6.9 3.4
2 1
0.7 0.42
4.2 1.98
2.1 0.99
2.1 0.99

1 0.8
40% 60%
40 15
1) A company while obtaining cost synergy will consider the following factor:
a) whether the merger will eliminate Overlapping Workforce Functions and Reduced Headcount
b) whether the company will help in Cost-Savings from Reduced Professional Services Fees (e.g. Marketing)
c) will there be Closure or Consolidation of Redundant Facilities
d) will it help Negotiating Leverage Over Suppliers (i.e. Extend Payables)
e) will it Streamlined Internal Processes and Integration of Operational “Best-Practices”
The company may opt to merge with its raw material supplier which will result in cost saving on purchase of raw materail or its r

2)
Step 1) Calculation of Swap Ratio based on Market Price per share
Swap Ratio 0.375

Step 2) Pre-Merger EPS of Y Ltd 1.2375

Step 3) Post-merger EPS of X Ltd

No. of shares alloted to Y Ltd. 0.3

Total no. of shares after Merger 1.3
Earning after Merger 3.09
Post-merger EPS 2.376923076923

Since, the post-merger EPS of Y Ltd is greater than the pre-merger EPS, the deal is profitable for Y Ltd.
ed Headcount
vices Fees (e.g. Marketing)

urchase of raw materail or its retailers to reduce the cost of selling.

difference between investment and commercial banking
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