Soham Limited is proposing to purchase Aham Limited. Information available for both the companies are as follows: Soham Limited Aham Limited Paid up share capital 5,00,000 equity shares of ₹10 each 2,50,000 equity shares

Calculation of total earnings after merger: Particulars Soham Limited Aham Limited Total Outstanding shares 5,00,000 2,50,000 EPS 5 4 Total earnings 25,00,000 10,00,000 35,00,000 (i) Calculation of EPS after amalgamation: Option 1: When exchange ratio is in proportion to the relative earnings per share of the two companies. Exchange Ratio = EPS of Aham Limited / EPS of Soham Limited = 4/5 Total Number of shares after merger = 5,00,000 + (2,50,000 × 4/5) = 5,00,000 + 2,00,000 = 7,00,000 EPS after merger = Total earnings after merger / Total Number of shares after merger = 35,00,000 / 7,00,000 = ₹5 Option 2: When exchange ratio is 1 share of Soham Limited for 2 shares of Aham Limited (i.e., 1:2). Total Number of shares after merger = 5,00,000 + (2,50,000 × 1/2) = 5,00,000 + 1,25,000 = 6,25,000 EPS after merger = Total earnings after merger / Total Number of shares after merger = 35,00,000 / 6,25,000 = ₹5.60 (ii) Impact of merger for the shareholders of the two companies under both options: Option 1: When share exchange ratio is in proportion to relative earnings per share (4/5) Under this option, pre and post-merger EPS for shareholders of both companies remain the same. Soham Limited Aham Limited EPS before merger 5 4 EPS after merger 5 5 * (4/5) = 4 Option 2: When share exchange ratio is 1 share of Soham Limited for 2 shares of Aham Limited (i.e., 1:2) Impact on shareholders of Soham Limited: EPS before merger 5 EPS after merger 5.60 Increase in EPS 0.60 Impact on shareholders of Aham Limited: EPS before merger 4 EPS after merger 5.60 * (1/2) = 2.80 Decrease in EPS 1.20