Ram Ltd. is considering Merger with Shyam Ltd. Ram Ltd. shares are currently traded at ₹20. It has 1,70,000 shares and its Profit After Taxes (PAT) amounts to ₹8,50,000. Shyam Ltd. has 40,000 shares having market price o

CS Professional · Corporate Restructuring, Insolvency, Liquidation & Winding-up · PYQS · December 2020
Ram Ltd. is considering Merger with Shyam Ltd. Ram Ltd. shares are currently traded at ₹20. It has 1,70,000 shares and its Profit After Taxes (PAT) amounts to ₹8,50,000. Shyam Ltd. has 40,000 shares having market price of ₹15 and its PAT is ₹3,00,000. If the merger goes through by exchange of equity shares and the exchange ratio is based on the current market price, what would be the new earning per share of Ram Ltd. ?

Answer & Explanation:

Calculation of New EPS of Ram Ltd. Market Price of Ram Ltd. shares: ₹20 Market Price of Shyam Ltd. shares: ₹15 Exchange Ratio based on market price: For every share of Shyam Ltd., shares of Ram Ltd. will be issued in the ratio of (Shyam's MP / Ram's MP) = 15/20 = 0.75 shares of Ram Ltd. Number of Equity shares to be issued to shareholders of Shyam Ltd.: 40,000 shares (Shyam) * (15/20) = 30,000 shares of Ram Ltd. Total Number of Shares in Ram Ltd. after merger: 1,70,000 (existing) + 30,000 (newly issued) = 200,000 shares Total PAT post-merger: ₹8,50,000 (Ram) + ₹3,00,000 (Shyam) = ₹11,50,000 New Earnings Per Share (EPS) of Ram Ltd. post-merger: Total PAT / Total Shares = ₹11,50,000 / 200,000 = ₹5.75

Topics: Corporate Restructuring

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