Find out the new Exchange (Swap) Ratio if Promoters holdings in A Limited is 50% and B Limited is 75% instead of 40% and 30% respectively as given above and also give your reasoning of its impact in exchange ratio, if an

If Promoters holdings in A Limited is 50% and B Limited is 75%, the free float shares will change, impacting the market price calculation. Recalculation of Free Float Shares and Market Price: Particulars A Limited (₹ Lakhs) B Limited (₹ Lakhs) Free float Market Capitalization (3) 3,150.00 1,400.00 New Promoters holding in the Company 50% 75% Free float in the Market = No. of shares x (1 - Promoters holding) (4) 30 x (1-50%) = 15 20 x (1-75%) = 5 New Market Price (B) = (3)/(4) 3,150 / 15 = 210.00 1,400 / 5 = 280.00 New Exchange Ratio Calculation (with original weights): Particulars A Limited (a) B Limited (b) Swap Ratio (c) = (b)/(a) Weight (d) Swap Ratio x Weight (E) = (c) x (d) Book Value per share (A) 117.00 77.80 1:0.665 25% 0.1663 Market Price (B) (New) 210.00 280.00 1:1.333 40% 0.5332 Earnings Per Share (EPS) (C) 10.40 8.75 1:0.841 25% 0.2103 Net Profit Ratio (D) 26% 27.78% 1:1.068 10% 0.1068 Total Weighted Swap Ratio 1.0166 Conclusion: The new Exchange or Swap Ratio is 1.0166 shares of A Limited for every share of B Limited . Therefore, total no. of shares to be issued by A Limited = 20 lakhs (shares of B Limited) × 1.0166 = 20.332 Lacs . Reasoning for its impact on exchange ratio: The increase in promoter holdings in both companies reduces the free float shares available in the market. For A Limited, promoter holding increases from 40% to 50%, reducing free float shares from 18 lakhs to 15 lakhs. This increases its market price from ₹175 to ₹210. For B Limited, promoter holding increases from 30% to 75%, significantly reducing free float shares from 14 lakhs to 5 lakhs. This dramatically increases its market price from ₹100 to ₹280. The substantial increase in B Limited's market price due to reduced free float (making its shares scarcer and thus more valuable in the market) has a significant impact on the overall weighted swap ratio. The market price component of the swap ratio (which has a 40% weightage) changes from 1:0.571 to 1:1.333. This shift is the primary driver for the overall swap ratio increasing from 0.7118 to 1.0166. As a result, B Limited shareholders will receive more shares of A Limited (20.332 Lacs instead of 14.24 Lacs) for their shares, indicating a more favorable exchange for B Limited shareholders due to the higher market valuation of their shares in a reduced free-float scenario.