X Ltd. is considering the proposal to acquire Y Ltd. and their financial information is given below : Particulars X Ltd. Y Ltd. No. of Equity Shares 1000000 600000 Market price per share (₹) 30 18 Market Capitalization (
CS Professional · Corporate Restructuring, Insolvency, Liquidation & Winding-up · PYQS · June 2022
X Ltd. is considering the proposal to acquire Y Ltd. and their financial information is given below : Particulars X Ltd. Y Ltd. No. of Equity Shares 1000000 600000 Market price per share (₹) 30 18 Market Capitalization (₹) 30000000 10800000 X Ltd. intend to pay ₹1,40,00,000 in cash for Y Ltd., if Y Ltd.'s market price reflects only its value as a separate entity, calculate the cost of merger : (i) When merger is financed by cash.
Answer & Explanation:
Cost of Merger, when Merger is financed by cash = (Cash - MVY) + (MVY - PVY) Where, MVY = Market Value of Y Ltd PVY = True/Intrinsic Value of Y Ltd. Then, = (₹1,40,00,000 - ₹1,08,00,000) + (₹1,08,00,000 - ₹1,08,00,000) = ₹32,00,000 If cost of merger becomes negative, then shareholders of X Ltd. will get benefited by acquiring Y Ltd. in terms of market value.
Topics: Corporate Restructuring
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