Gama Pesticide Ltd. (GPL) is taking over Theta Fertilizer Ltd. (TFL). The shareholders of TFL would get 0.8 shares of GPL for each share held by them. The merger is not expected to yield in economies of scale and operati

CS Professional · Corporate Restructuring, Valuation and Insolvency · PYQS · December 2016
Gama Pesticide Ltd. (GPL) is taking over Theta Fertilizer Ltd. (TFL). The shareholders of TFL would get 0.8 shares of GPL for each share held by them. The merger is not expected to yield in economies of scale and operating synergy. The relevant data of the two companies are as follows: GPL TFL Net sales (₹ in crore) 335 118 Profit after tax (₹ in crore) 58 12 Number of shares (crore) 12 3 Earnings per share (₹) 4.83 4.00 Market value per share (₹) 30 20 Price-earnings ratio 6.21 5.00 You are required to calculate the following in respect of the resultant company after merger: (iii) Market value per share

Answer & Explanation:

Calculations for resultant company after merger: Value of Theta's shares before merger = ₹ 20 Premium = ₹ 4 Premium Percentage = 4/20 = 20% Numbers of shares paid to Theta's shareholders: 3 * 0.8 = 2.4 crore Number of shares of the combined company = 12 + 2.4 = 14.4 crore Combined profit after tax (= ₹ 58 + ₹ 12) = ₹ 70 Crore (iii) Market value per share = P/E ratio * EPS = 6.00 * 4.86 = ₹ 29.16

Topics: Valuation

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