T Ltd. and E Ltd. are in the same industry. The former is in negotiation for acquisition of the latter. Important information about the two…

As per T Ltd.'s Offer (i) Net Consideration Payable (in lakhs) 7 times EBIDAT of E Ltd. = 7 × ₹ 115.71 lakh = 809.97 lakh Less: Debt of E Ltd. = 240.00 lakh Net Consideration Payable = 569.97 lakh (ii) No. of shares to be issued by T Ltd No. of shares = Net Consideration Payable / Market Price per share of T Ltd. = 569.97 lakh /220 = 2.59077 lakh ≈ 2.59 lakh (rounded off) (iii) EPS of T Ltd after acquisition Total EBIDAT (T Ltd. + E Ltd.) = 400.86 lakh +115.71 lakh = 516.57 lakh Less: Interest (10% of Debentures of T Ltd. + 12.5% of Institutional Loan of E Ltd.) = (10% of 580lakh) + (12.5% of 240lakh) = 58.00 lakh +30.00 lakh = 88.00 lakh EBT = 516.57 lakh -88.00 lakh = 428.57 lakh Less: 30% Tax = 30% of 428.57 lakh = 128.571 lakh Total earnings (NPAT) = 428.57 lakh -128.571 lakh = 300.00 lakh (approx) Total no. of shares outstanding (T Ltd. existing + new issued) = 12 lakh + 2.59 lakh = 14.59 lakh EPS = Total earnings (NPAT) / Total no. of shares outstanding = 300.00 lakh / 14.59 lakh = 20.56 per share (iv) Expected market price per share of T Ltd. after acquisition Pre-acquisition P/E multiple of T Ltd. = Market Price / EPS EPS of T Ltd. (pre-acquisition) = (EBIDAT - Interest - Tax) / Shares outstanding Interest of T Ltd. = 10% of 580lakh = 58 lakh EBT of T Ltd. = 400.86 lakh -58 lakh = 342.86 lakh Tax = 30% of 342.86 lakh = 102.858 lakh NPAT of T Ltd. = 342.86 lakh -102.858 lakh = 240.002 lakh ≈ 240lakh EPS of T Ltd. = 240 lakh / 12 lakh = 20.00 per share Pre-acquisition P/E multiple = 220 /20 = 11 Expected market price after acquisition = Post-acquisition EPS × P/E multiple = 20.56 × 11 = 226.16 As per E Ltd.'s Plan (i) Net consideration payable (in lakhs) E Ltd. seeks one share in T Ltd. for every 2 shares in E Ltd. based on market price. Market price of E Ltd. share = 110 Total shares of E Ltd. = 6 lakh Total value of E Ltd. = 6 lakh shares × ₹ 110 = 660 lakh Net consideration payable = 660 lakh (ii) No. of shares to be issued by T Ltd Exchange ratio: 1 share of T Ltd. for 2 shares of E Ltd. Shares to be issued by T Ltd. = (6 lakh shares of E Ltd. / 2) = 3 lakh shares (iii) EPS of T Ltd after Acquisition NPAT (as per earlier calculations) = 300.00 lakh Total no. of shares outstanding (T Ltd. existing + new issued) = 12 lakh + 3 lakh = 15 lakh EPS = 300.00 lakh / 15 lakh = 20.00 per share (iv) Expected Market Price (20 x 11) Expected market price after acquisition = Post-acquisition EPS × P/E multiple = 20.00 × 11 = 220.00 (v) Advantages of Acquisition to T Ltd. Since the two companies are in the same industry, the following advantages could accrue: Synergy, cost reduction and operating efficiency.Better market share.Avoidance of competition.