Company A wishes to takeover company B. The financial details of the two companies are as follows:
|
particulars |
Company A Rs. |
Company B Rs. |
|
Equity Shares (Rs. 10 per Share) |
5,00,000 |
2,50,000 |
|
Share Premium Account |
— |
10,000 |
|
Profit and Loss Account |
1,90,000 |
20,000 |
|
Preference Shares |
1,00,000 |
— |
|
0% Debentures |
75,000 |
25,000 |
|
8,65,000 |
3,05,000 |
|
|
Fixed Assets |
6,10,000 |
1,75,000 |
|
Net Current Assets |
2,55,000 |
1,30,000 |
|
8,65,000 |
33,05,000 |
|
|
Maintainable Annual |
1,20,000 |
75,000 |
|
Profit (After Tax) for Equity Shareholders |
||
|
Market Price for Equity Share |
24 |
27 |
|
Price/Earnings Ratio |
10 |
9 |
What offer do you think Company A could make to Company B in terms of exchange ratio, based on (i) net asset value; (ii) earning per share and (iii) market price per share? Which method would you prefer from Company A’s point of view?