Comment on the above offers.

Comments on the above offers: It may be noted that initial increase and decrease in earnings per share are both possible in case of merger. Generally, the dilution in EPS will occur wherever the P/E ratio of the acquired company (calculated on the basis of price paid) exceeds the P/E ratio of an acquiring company and vice-versa. This can be verified with the figures given in the present illustration. In situation (a), the P/E ratio offered for B Ltd. (12.5) is lower than A Ltd.'s P/E ratio (15), leading to an increase in A Ltd.'s EPS. In situation (b), the P/E ratio offered for B Ltd. (16.7) is higher than A Ltd.'s P/E ratio (15), leading to a dilution in A Ltd.'s EPS.