The following information is available in respect of acquiring company FM Ltd. and target company VM Ltd. : Particulars FM Ltd VM Ltd Remarks Earnings after Tax ₹2000 lakh ₹400 lakh PAT No. of Shares issued and paid up 2

CS Professional · Corporate Restructuring, Valuation and Insolvency · PYQS · June 2019
The following information is available in respect of acquiring company FM Ltd. and target company VM Ltd. : Particulars FM Ltd VM Ltd Remarks Earnings after Tax ₹2000 lakh ₹400 lakh PAT No. of Shares issued and paid up 200 lakh 100 lakh Face Value ₹10 P/E Ratio 10 5 — You are required to calculate: Total Value of Merged Company.

Answer & Explanation:

S. No. Particulars FM Ltd. VM Ltd. 1 Earnings Per Share (EPS) ₹2,000 lakh / 200 lakh = ₹10 ₹400 lakh / 100 lakh = ₹4 2 Market Price (EPS x PE ratio) 10 × 10 = ₹100 per share 4 × 5 = ₹20 per share No. of shares to be issued = 100 × 0.2 = 20 lakh shares EPS after merger = (₹2,000 lakh + ₹400 lakh) / (200 lakh + 20 lakh) = 2,400 / 220 = ₹10.91 Expected share price after merger when PE ratio remain unchanged: Expected share price after merger = EPS after merger x PE ratio = 10.91 × 10 = ₹109.10 Total value of the merged company FM Ltd. = Share price x No. of shares = 109.10 × 220 = ₹240.02 crore

Topics: Valuation

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