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Mergers and Acquisitions

General Instructions:
The Student should submit this assignment in the handwritten form (not in the typed format) The Student should submit this assignment within the time specified by the exam dept The student should only use the Rule sheet papers for answering the questions. The student should attach this assignment paper with the answered papers.

Failure to comply with the above Four instructions would lead to rejection of assignment.
Specific Instructions:
There are four Questions in this assignment. The student should answer all the four questions. Marks allotted 100. Each Question carries equal marks (25 marks) unless specified explicitly.

Question No 1:

The shareholding of Winsome Ltd., a company in which the public are not substantially interested, as on 31st March, 2005, is as under : Indian joint-venture partner 50% Foreign joint-venture partner 50% Total 100% The company has two distinct lines of business. It has a carry forward loss of Rs.10 crore as on 31st March, 2005 and it continues to incur losses. The management is desirous of utilising the accumulated losses. Advise. b) Define alliance. What are the characteristics of a strategic alliance? What are its advantages ?

a)

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Question No 2 a) Explain the strategic reasons behind reverse mergers.

b) Kangan Ltd. is considering merger with Payal Ltd. Kangan Ltd.s shares are currently traded at Rs.25 per share. It has 2,00,000 shares outstanding and its earnings after taxes (EAT) amount to Rs.4,00,000. Payal Ltd. has 1,00,000 shares outstanding; its current market price is Rs.12.50 per share and its EAT is Rs.1,00,000. The merger will be effected by means of a stock-swap (exchange). Payal Ltd. has agreed to a plan under which Kangan Ltd. will offer the current market value of Payal Ltd.s shares. (i) What are the pre-merger earnings per share (EPS) and P/E ratios of both the companies ? What must the exchange ratio be for Kangan Ltd.s pre-merger and post-merger EPS to be the same ? If Payal Ltd.s P/E ratio is 8, what will be its current market price ? What will be the exchange ratio ? What will Kangan Ltd.s post-merger EPS be?

Question No 3:

a)

Explain the formula for pricing of shares in a preferential allotment.

b) What are the different kinds of takeover? Anjana Ltd. wants to acquire the shares of Good Luck Ltd., a listed company. Enumerate the obligations of the acquirer company under the SEBI Takeover Code. c) Vinod is having 14% of shares or voting rights of Ambitious Ltd., a listed company. Vinod wants to further acquire 40% of shares in Ambitious Ltd. What are the steps he is required to take?

d) Distinguish between the following: (i) Appointed date and effective date. (ii) Mandatory bid and competitive bid.

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Question No 4:

You have been provided the following financial data of two companies:
Krishna Ltd. Earning after taxes Equity shares outstanding Earning per share Price-earning ratio Market price per share Rs.7,00,000 Rs.2,00,000 3.5 10 times Rs.35 Rama Ltd Rs.10,00,000 Rs.4,00,000 2.5 14 times Rs.35

Company Rama Ltd. is acquiring the company Krishna Ltd. exchanging its shares on a one-to-one basis for company Krishna Ltd shares. 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.

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