Based on a 0.4:1 exchange ratio and assuming that A Ltd.'s pre-merger P/E ratio will continue after the merger, estimate the post-merger market price. Show the resulting accretion or dilution in pre-merger market prices.
CS Professional · Capital Commodity and Money Market · PYQS · December 2015
Based on a 0.4:1 exchange ratio and assuming that A Ltd.'s pre-merger P/E ratio will continue after the merger, estimate the post-merger market price. Show the resulting accretion or dilution in pre-merger market prices.
Answer & Explanation:
Post-Merger Market Price Particulars A Ltd. B Ltd. Combined EAT (₹) 2.10 1.24 2.34 P/E ratio (*) 19.05 (*) 12.12 (*)19.05 40 15 44.60 MPS accretion 4.60 2.84*** Working Notes: MPS claim per old share = 44.60 * 0.4 = ₹17.84 Less: MPS per old share = 15.00 Accretion = 2.84
Topics: Mergers and Acquisitions
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