The following information is provided relating to the acquiring company E Ltd., and the target company H Ltd: Particulars E Ltd. (₹) H Ltd. (₹)…

CA Final · Advanced Financial Management · MTP · November 2026
The following information is provided relating to the acquiring company E Ltd., and the target company H Ltd: Particulars E Ltd. (₹) H Ltd. (₹) Number of shares (Face value ₹ 10 each) 20 Lakhs 15 Lakhs Market Capitalization 1000 Lakhs 1500 Lakhs P/E Ratio (times) 10.00 5.00 Reserves and surplus in ₹ 600.00 Lakhs 330.00 Lakhs Promoter's Holding (No. of shares) 9.50 Lakhs 10.00 Lakhs The Board of Directors of both the companies have decided to give a fair deal to the shareholders. Accordingly, the weights are decided as 40%, 25% and 35% respectively for earnings (EPS), book value and market price of share of each company for swap ratio.Calculate the following:(i) Market price per share, earnings per share and Book Value per share;(ii) Swap ratio;(iii) Promoter's holding percentage after acquisition;(iv) EPS of E Ltd. after acquisitions of H Ltd;(v) Expected market price per share and market capitalization of E Ltd.; after acquisition, assuming P/E ratio of E Ltd. remains unchanged; and(vi) Free float market capitalization of the merged firm.

Suggested Answer and Working Notes:

(i) E Ltd. H Ltd. Market capitalisation 1000 lakhs 1500 lakhs No. of shares 20 lakhs 15 lakhs Market Price per share ₹50 ₹100 P/E ratio 10 5 EPS Profit Share capital Reserves and surplus Total Book Value per share E Ltd. ₹5 100 lakh 200 lakh 600 lakh 800 lakh ₹40 H Ltd. ₹20 300 lakh 150 lakh 330 lakh 480 lakh ₹32 (ii) Calculation of Swap Ratio EPS 1: 4 i.e. 4.0 × 40% 1.6 Book value 1: 0.8 i.e. 0.8 × 25% 0.2 Market price 1: 2 i.e. 2.0 × 35% 0.7 Total 2.5 Swap ratio is for every one share of H Ltd., to issue 2.5 shares of E Ltd.Hence, total no. of shares to be issued 15 lakh × 2.5 = 37.50 lakh shares(iii) Promoter's holding = 9.50 lakh shares + (10× 2.5 = 25 lakh shares) = 34.50 lakh i.e. Promoter's holding % is (34.50 lakh/57.50 lakh) × 100 = 60%.(iv) Calculation of EPS after mergerTotal No. of shares 20 lakh + 37.50 lakh = 57.50 lakhEPS = (100 lakh + 300 lakh) / 57.50 lakh = 400 / 57.50 = ₹ 6.956(v) Calculation of Market price and Market capitalization after mergerExpected market price EPS 6.956 × P/E 10 = ₹ 69.56Market capitalization = ₹ 69.56 per share × 57.50 lakh shares= 3,999.70 lakh or 4,000 lakh(vi) Free float of market capitalization = ₹ 69.56 per share × (57.50 lakh × 40%) = 1599.88 lakh

Topics: Mergers, Acquisitions and Corporate Restructuring

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