Hunny Ltd. is considering merger with Bunny Ltd. Hunny Ltd. has 3,40,000 shares with current market price at ₹ 20 per share and its Profit After Taxes (PAT) amounts to ₹ 17,00,000. Bunny Ltd. has 80,000 shares with curre

(ii) Exchange Ratio with Earning Assurance: If the exchange ratio is decided with a view to maintain the pre-merger EPS of the Transferor Company, shareholders of both the companies should get the same share in earnings as they were getting before the merger. Pre-merger EPS: Hunny Ltd ₹ 17,00,000/3,40,000 shares = ₹ 5 per share Bunny Ltd ₹ 6,00,000/80,000 shares = ₹ 7.5 per share Exchange Ratio: 7.5/5 = 1.5 or 3 shares in Hunny Ltd. for every 2 shares held in Bunny Ltd Or 80,000 x 3/2 = 1,20,000 shares Total number of Shares after merger 3,40,000 + 1,20,000 = 4,60,000 shares EPS = ₹ 23,00,000/4,60,000 shares = ₹ 5 per share Earnings for Shareholders of Bunny Ltd. after Merger = 1,20,000 * 5 = ₹ 6,00,000 that confirms to pre-merger earnings of Bunny Ltd.