MERGER,ACQUISITION AND CORPORATE RESTRUCTURING

84,250 views

Published on

MERGER,ACQUISITION AND CORPORATE RESTRUCTURING

Published in: Economy & Finance, Business
13 Comments
43 Likes
Statistics
Notes
No Downloads
Views
Total views
84,250
On SlideShare
0
From Embeds
0
Number of Embeds
311
Actions
Shares
0
Downloads
2,744
Comments
13
Likes
43
Embeds 0
No embeds

No notes for slide

MERGER,ACQUISITION AND CORPORATE RESTRUCTURING

  1. 1. Merger,acquisition And Corporate Restructuring
  2. 2. Structure <ul><li>Conceptual framework </li></ul><ul><li>History of M&A </li></ul><ul><li>Financial framework </li></ul><ul><li>Corporate restructuring </li></ul><ul><li>Accounting for amalgamation </li></ul><ul><li>Tax benefits </li></ul><ul><li>Exercise </li></ul>
  3. 3. CONCEPTIONAL FRAMEWORK <ul><li>MEANING OF </li></ul><ul><li>MERGERS </li></ul><ul><li>ACQUSITIONS </li></ul><ul><li>AMALAMATIONS </li></ul><ul><li>TAKEOVERS </li></ul><ul><li>ABSORPTIONS </li></ul>
  4. 4. TYPES OF MERGERS <ul><li>HORIZONTAL MERGER – SIMILAR LINES OF ACTIVITY </li></ul><ul><li>as Ford announced the sale of the two British iconic cars to Tata Motors Ltd. </li></ul><ul><li>Ford acquired Jaguar for $2.5 bn in 1989 and Land Rover for $2.75 bn in 2000 but put them on the market last year after posting losses of $12.6 bn in 2006 - the heaviest in its 103-year history. </li></ul>
  5. 5. <ul><li>HDFC Bank's merger with Centurion Bank of Punjab and Walt Disney Company's acquisition of 17.2per cent stake in UTV Software Communication to increase its stake to 32.10 per cent in the company. In February 2008, as many as 38 cross-border deals were announced with total value of $2.80 billion, of which 27 were outbound deals with a value of $2.57 billion. </li></ul>
  6. 6. Diologic Report <ul><li>Meanwhile, global financial information provider Diologic in its latest report said that India-targeted M&A volumes reached $11.9 billion through 345 deals so far this year. US was the leading acquiring country with deals worth 1.6 billion dollars, followed by the UK with $904 million and Germany with USD 584 million. </li></ul>
  7. 7. ADVANTAGES <ul><li>REDUCTION OF COMPETITION </li></ul><ul><li>PUTTING AN END TO PRICE CUTTING </li></ul><ul><li>ECONOMIES OF SCALE IN PRODUCTION </li></ul><ul><li>RESEACH AND DEVELOPMENT </li></ul><ul><li>MARKETING AND MANAGEMENT </li></ul>
  8. 8. VERTICAL MERGER – <ul><li>FIRMS SUPPLYING RAW MATERIALS MERGE WITH FIRM THAT SELLS </li></ul><ul><li>ADVANTAGE </li></ul><ul><li>LOWER BUYING COST OF MATERIAL </li></ul><ul><li>LOWER DISTRIBUITION COST </li></ul><ul><li>ASSURED SUPPLIES AND MARKET </li></ul><ul><li>COST ADVANTAGE </li></ul>
  9. 9. CONGLOMERATE MERGER <ul><li>UNRELATED INDUSTRIES MERGE </li></ul><ul><li>PURPOSE </li></ul><ul><li>DIVERSIFICATION OF RISK </li></ul><ul><li>Ex:Time warner-(they were into media & movie production) & AOL-(leading American website) </li></ul>
  10. 10. Expansion <ul><li>Merger and Acquisition </li></ul><ul><li>Asset acquisition </li></ul><ul><li>Joint ventures </li></ul><ul><li>Tender offer </li></ul>
  11. 11. Contraction <ul><li>1.Spin off-shares in subsidiary distributed to its own shareholders </li></ul><ul><li>Kotak Mahendra Capital finance Ltd formed a subsidiary called Kotak Mahendra Capital Corporation by spinning off its investment division. </li></ul><ul><li>2.Split off- A new company is created to takeover an existing division or unit. </li></ul><ul><li>It does not result in any cash inflow to the parent company </li></ul>
  12. 12. HISTORY
  13. 13. The First wave <ul><li>1897-1904-horizontal Mergers </li></ul><ul><li>Monopolistic Market structure </li></ul><ul><li>Mega merger between US Steel and Carnegie Steel.It also merged with 785 separate firms-75% of Steel production of US. </li></ul><ul><li>More than 3000 companies disappeared. </li></ul><ul><li>General Electric,Navistar, Standard Oil, Du-Point, American Tobacco-90% of market share </li></ul><ul><li>Transformation of regional firms into national firms. </li></ul><ul><li>Exploited the economies of scale. </li></ul>
  14. 14. Table-1 <ul><li>Year Number of mergers </li></ul><ul><li>1897 69 </li></ul><ul><li>1898 303 </li></ul><ul><li>1899 1208 </li></ul><ul><li>1900 340 </li></ul><ul><li>1904 79 </li></ul>
  15. 15. Problems of the first Wave <ul><li>Financial factors </li></ul><ul><li>Fraudulent financing </li></ul><ul><li>Stock Market crash in 1904 and Banking panic of 1907 </li></ul><ul><li>Closure of many banks and formation of Federal Reserve System. </li></ul><ul><li>Easy finance ends here. </li></ul><ul><li>The US President Teodore Roosevelt and President William Taft made a crack down on Large Monopolies. </li></ul><ul><li>As a result: ???? What happened to Standard Oil? </li></ul>
  16. 16. Standard Oil(SO) <ul><li>Broken in to 30 Companies. </li></ul><ul><li>SO of New Jersey named EXXON </li></ul><ul><li>SO of New York named MOBIL </li></ul><ul><li>SO of California renamed CHEVRON </li></ul><ul><li>SO of Indiana renamed AMOCO </li></ul>
  17. 17. The Second Wave <ul><li>1916-1929 </li></ul><ul><li>Oligopolies industry structure </li></ul><ul><li>Industries like primary metals, petrolium products, food products, chemicals </li></ul><ul><li>Outside the previously consolidated heavy manufacturing industries. </li></ul><ul><li>Product extension merger like IBM and General Foods </li></ul><ul><li>Vertical mergers In the mining and metal industries(1920) </li></ul>
  18. 18. Prominent Corporations <ul><li>General Motors, IBM, Union Carbide, John DEERE </li></ul><ul><li>Between 1926 and 1930- there were 4600 mergers took place </li></ul><ul><li>Result of which between 1919 and 1930 12,000 manufacturing , mining,public utility and banking firms disappeared. </li></ul><ul><li>This period rail transportation, motor vehicle transportation became national market. </li></ul><ul><li>Radios in homes, entertainment enhanced the competition. </li></ul><ul><li>Mass merchandising, national brand advertising </li></ul>
  19. 19. <ul><li>Enhance productivity as a part of war effect. </li></ul><ul><li>The firms were urged to work together rather than compete </li></ul><ul><li>The second wave came to an end when stock market crashed on October 29,1929. </li></ul><ul><li>Investment Bankers played in the first two phases of mergers. </li></ul>
  20. 20. The 1940s <ul><li>The second world war with merger of small firms with larger firms </li></ul><ul><li>Motive of tax relief </li></ul><ul><li>High estate taxes </li></ul><ul><li>There were no increased concentration of wealth </li></ul><ul><li>Mergers were small. </li></ul>
  21. 21. The third Wave-1965-1969 <ul><li>Merger activity reached its highest level during this period </li></ul><ul><li>Booming of economy </li></ul><ul><li>Conglomerate merger period-80% </li></ul><ul><li>Diversification strategy </li></ul><ul><li>It is because of ANTI TRUST enforcement </li></ul><ul><li>Federal government adopted a stronger antitrust enforcement both with horizontal and verticle merger. </li></ul><ul><li>1963-1361 mergers; 1970-5152 mergers </li></ul>
  22. 22. Management sciences <ul><li>Management principles were applied in industries. </li></ul><ul><li>Management graduates were employed to manage conglomerate mergers. </li></ul><ul><li>There were 6000 mergers which leads to 25000 firms disappeared. </li></ul><ul><li>Investment Bankers do not finance most of these mergers </li></ul><ul><li>Finance:-???? </li></ul>
  23. 23. Finance for mergers <ul><li>Equity financing </li></ul><ul><li>Boom in stock market prices </li></ul><ul><li>Many conglomerate merger failed </li></ul><ul><li>The Revlon –cosmetic entered into health care and failed and suffered in cosmetic industry. </li></ul>
  24. 24. The Fourth Wave-1981-1989 <ul><li>Recession in 1974-75 </li></ul><ul><li>Hostile merger </li></ul><ul><li>Take over or targeting on target company’s board of directors. </li></ul><ul><li>If the board accepts, it is considered friendly, and if it opposes it, it is deemed to be hostile. </li></ul><ul><li>The great mergers such as Oil companies-21.6% </li></ul><ul><li>Of dollar values of merger and acquisitions </li></ul><ul><li>Drugs and medical equipment industries due to deregulation in some industries </li></ul><ul><li>Deregulation of airline industries </li></ul>
  25. 25. <ul><li>Investment bankers played an aggressive role. </li></ul><ul><li>M&A advisory services became a lucrative source of income for Goldman Sachs </li></ul><ul><li>Innovation in acquisition techniques </li></ul>
  26. 26. The Fifth Wave-1992-till date <ul><li>Once again increased activity in merger in 1992 </li></ul><ul><li>Mega mergers </li></ul><ul><li>Strategic mergers </li></ul><ul><li>Equity based </li></ul><ul><li>Deregulations and technological changes </li></ul><ul><li>Banking , telecommunications entertainment and media industries </li></ul><ul><li>High growth in banking sectors in 1990 as banks grew greater than central banks. </li></ul><ul><li>Banks fund M&A rather than new ventures. </li></ul>
  27. 27. Oligopoly market structure <ul><li>Competition declined </li></ul><ul><li>Very few competitors </li></ul><ul><li>Example: Coco-Cola-44.5%,Pepsi-31.4%,Cadbury Schweppes-14.4% </li></ul><ul><li>Globalisation </li></ul><ul><li>Not confined to US companies </li></ul><ul><li>1995-US companies were acquired </li></ul>
  28. 28. <ul><li>1981-2395 </li></ul><ul><li>1989-2366 </li></ul><ul><li>1990-2074 companies </li></ul><ul><li>2001-7528 companies merged </li></ul>
  29. 29. Major Mergers in the telecom <ul><li>Acquirer Target </li></ul><ul><li>Vodafone Mannes man </li></ul><ul><li>MCL worldcom Spirit </li></ul><ul><li>Bell atlantic GTE </li></ul><ul><li>AT&T MeCaw Celluar </li></ul><ul><li>SBC Pacific Telesis </li></ul>
  30. 30. Major Mergers in Media and Entertainment sector <ul><li>AOL Time Warner </li></ul><ul><li>VIOCOM CBS </li></ul><ul><li>WALT DISNEY CAPITAL ITIES/ABC </li></ul><ul><li>AT&T MEDIA ONE </li></ul><ul><li>TIME WARNER TURNER BRODCAST </li></ul>
  31. 31. M&A IN INDIA <ul><li>License era-Unrelated diversification </li></ul><ul><li>Conglomerate merger </li></ul><ul><li>Friendly take over and hostile bids by buying equity shares </li></ul><ul><li>Example: Swaraj paul attempted to raid on Escorts Ltd.and DCM Ltd but could not succeed. </li></ul><ul><li>The Hindujas raided and took over Ashok leyland and Ennore Foundaries. </li></ul><ul><li>Chhabria Group acquired stake in Shaw Wallace, Dunlop india and Falcon Tyres. </li></ul>
  32. 32. <ul><li>Goenka group from culcutta took over Ceat tyres. </li></ul><ul><li>The Obroi-Pleasant hotels of Rane group. </li></ul><ul><li>1989- Tata Tea acquired 50% of the equity shares of Consolidated Coffee Ltd from resident shareholders. </li></ul><ul><li>merged to form HCL Ltd??. </li></ul>
  33. 33. HCL <ul><li>Hindustan Computers, Hindustan Reprographic, Hindustan Telecommunications and Indian Software Ltd. </li></ul>
  34. 34. Comparative study <ul><li>US India </li></ul><ul><li>Strategic By default(ANZ& Standard chartered </li></ul><ul><li>Gains by invest Not benefited by banks </li></ul><ul><li>ment bankers </li></ul><ul><li>Capital goods consumer goods </li></ul><ul><li>Borrowed </li></ul><ul><li>Earlier debt later by equity cash/FDI </li></ul><ul><li>Anti trust MRTP later The competition bill 2001 </li></ul>
  35. 35. FINANCIAL FRAMEWORK <ul><li>IT COVERS THREE INTERRELATED </li></ul><ul><li>ASPECTS </li></ul><ul><li>DETERMINING THE FIRM’S VALUE </li></ul><ul><li>FINANCING TECHNIQUES IN MERGER </li></ul><ul><li>CAPITAL BUDGETING </li></ul>
  36. 36. DETERMINIG THE FIRMS VALUE <ul><li>QUANTITATIVE FACTORS – BASED ON </li></ul><ul><li>THE VALUE OF THE ASSETS </li></ul><ul><li>BOOK VALUE – OWNERS EQUITY </li></ul><ul><li>DEPENDS ON FIXED ASSETS AND WORKING CAPITAL </li></ul><ul><li>APPRAISAL VALUE- INDEPENDENT APPRISAL AGENCIES </li></ul><ul><li>MARKET VALUE – BASED ON STOCK MARKET QUATATIONS ,BUT CHANCE FOR SPECULATION </li></ul><ul><li>EARNING PER SHARE AND P/E RATIO – IMPACT OF EPS AFTER MERGER </li></ul><ul><li>THE EARNINGS OF THE FIRM </li></ul>
  37. 37. EXERCISE <ul><li>COMPANY A </li></ul><ul><li>NO. OF SHARES 2 LACS </li></ul><ul><li>MARKET VALUE PER SHARE RS.25 </li></ul><ul><li>EPS RS.3.125 </li></ul><ul><li>COMPANY B </li></ul><ul><li>NO. OF SHARES 1 LAC </li></ul><ul><li>MARKET VALUE RS.18.75 </li></ul><ul><li>EPS RS.2.5 </li></ul>
  38. 38. CONCLUSIONS <ul><li>EXCHANGE AT EPS – NO EFFECT ON EPS AFTER MERGER </li></ul><ul><li>EXCHANGE MORE THAN EPS RATIO – COMPANY WITH LOWER EPS GAINS </li></ul><ul><li>IF LESS THAN EPS RATIO – COMPANY WITH HIGHER EPS BEFORE MERGER GAINS </li></ul>
  39. 39. PRICE EARNING RATIO APPROACH <ul><li>MEANING </li></ul><ul><li>COMPUTATION : </li></ul><ul><li>P/E RATIO = MP/EPS </li></ul><ul><li>EPS = EAT/NO. OF EQUITY SHARES </li></ul><ul><li>MARKET PRICE = P/E (NO. OF TIMES) * EPS </li></ul>
  40. 40. EXAMPLE 7.5 8 P/E RATIO(TIMES) 18,75,000 50,00,000 TOTAL MARKET VALUE (N*MPS) OR (EAT*P/E RATIO) 18.75 25 MARKET PRICE PER SHARE(MPS) 2.5 3.125 EPS 1,00,000 2,00,000 NO. OF SHARES 2,50,000 6,25,000 EAT FIRM B FIRM A PRE MERGER SITUATION
  41. 41. 7.5 8 P/E RATIO (ASSUMED TO BE THE SAME) 21.825 3.125*8=25 MPS 65,47,500 70,00,000 TOTAL MARKET VALUE 8,75,000/3,00,000=2.91/ 8.75/2.8=3.125 EPS 2,00,000+1,00,000=3,00,000 2.8 lakhs NO. OF SHARES 8,75,000 6.25+2.5=8.75 EAT(COMBINED FIRM) 1 : 1 2.5:3.125=.8 EXCHANE RATIO/ SWAP RATIO (ASSUMING) SITUATION 2 SITUATION 1 (BASED ON CURRENT MARKET PRICE POST MERGER
  42. 42. CONCLUSION <ul><li>IF SHARES ARE EXCHANGED BASED ON CURRENT MARKET PRICE PER SHARE , POST MARKET PRICE SHARE INCREASED AT HIGHER RATE THAN EXCHANGED BELOW THIS RATIO </li></ul><ul><li>Boot strap effect </li></ul>
  43. 43. <ul><li>MARKET VALUE AFTER MERGER = MARKET VALUE BEFORE MERGER = 68,75,000 </li></ul><ul><li>NET GAIN = 15,00,000 </li></ul><ul><li>? IF EXCHANGE RATIO IS 2.5:1 WHO GAINS WHO LOSES </li></ul><ul><li>? IF EXCHANGE RATIO IS 1:1 WHO GAINS WHO LOSES </li></ul><ul><li>? HOW TO CALCULATE TOLERABLE SHARE EXCHANGE RATIO </li></ul>
  44. 44. DETERMINATION OF TOLERABLE SHARE EXCHANGE RATIO 75,00,000 10,00,000 TOTAL MV LESS: MINIMUM TO BE GIVEN TO B 1,00,000 NO. OF SHARES OF A TO A CO. SHARE HOLDERS 65,00,000 NET BENEFIT TO A 10,00,000/65 = 15,385 SHARES NO. OF EQUTY SHARES TO BE ISSUED BASED ON DESIRED MARKET PRICE 50,000/15385 = 3.25 SHARES OF FIRM B, 1 SHARE IN FIRM A 1:3.25 TOLERANCE SHARE EXCHANGE RATIO 65 PER SHARE DESIRED POST MERGER MPS
  45. 45. CONCLUSION <ul><li>FIRM WITH HIGHER P/E RATIO CAN ACQUIRE FIRM WITH LOWER P/E RATIO WHICH WILL INVARIABLY INCREASES MARKET VALUE AFTER MERGER </li></ul>
  46. 46. CAPITAL BUDGETING <ul><li>THE TARGET FIRM SHOULD BE VALUED BASED ON PV OF INCREMENTAL CASH INFLOWS </li></ul>
  47. 47. CORPORATE RESTRUCTURING <ul><li>FINANCIAL RESTRUCTURING </li></ul><ul><li>RESTRUCTURING SCHEMES : INTENAL AND EXTERNAL RESTRUCTURING </li></ul><ul><li>DEMERGERS </li></ul><ul><li>BUYOUTS </li></ul>
  48. 48. ACCOUNTING FOR AMALGAMATION <ul><li>POOLING INTEREST METHOD </li></ul><ul><li>CONDITIONS AS PER AS 14: </li></ul><ul><li>ALL ASSETS AND LIABILITIES OF TRANSFEROR CO. TO BE THE ASSETS OF THE TRANSFREE CO. </li></ul><ul><li>AT LEAST 90% OF F.V OF EQUITY SHARE HOLDERS SHOULD BE SHAREHOLDERS OF NEW CO. </li></ul><ul><li>PURCHACE CONSIDERATION TO BE SETTLED BY THE NEW CO. </li></ul><ul><li>THE BUSINESS OF NEW CO. SHOULD CONTINUE </li></ul><ul><li>NO ADJUSTMENT IS INTENDED TO BE MADE TO BOOK VALUE OF ASSETS AND LIABILITIES OF TRANSFEROR CO. </li></ul>
  49. 49. OTHER ACCOUNTING TREATMENTS <ul><li>CROSS HOLDINGS OF SHARES TO BE CANCELLED SUBSIQUENT TO MERGER </li></ul><ul><li>INTER CO. TRANSACTIONS LIKE DEBTORS AND CREDITORS – SALE OF GOODS FROM ONE CO. TO ANOTHER </li></ul><ul><li>SALES TAX PAID ALREADY CAN NOT BE RECOVERED </li></ul>
  50. 50. INCOME TAX RELATED ISSUES FOR AMALGAMATION <ul><li>CONDITIONS OF AMALGAMATION UNDER INCOME TAX ACT SEC 2 (1B) </li></ul><ul><li>ALL ASSETS AND LIABILITIES OF TRANSFEROR CO. TO BE THE ASSETS OF THE TRANSFREE CO. </li></ul><ul><li>SHARE HOLDERS HOLDING NOT LESS THAN 3/4 TH IN VALUE OF SHARES OTHER THAN SHARES ALREADY HELD SHOULD BECOME SHARE HOLDERS OF AMALGAMATED COMPANY </li></ul><ul><li>EX. NO. OF SHARES OF Altd CO. 1,00,000 </li></ul><ul><li>NO. OF SHARES HELD BY Bltd IN Altd IS 20,000 </li></ul><ul><li>NOMINAL VALUE OF SHARE IS RS.10 </li></ul><ul><li>ASSUME Altd MERGE WITH Bltd THEN 75% OF 1,00,000- 20,000 = 60,000 TO BE THE SHARE HOLDES OF B CO. </li></ul><ul><li>NOTE:SHARE HOLDERS MAY BE EQUITY OR PREFERNCE SHARE HOLDERS </li></ul>
  51. 51. OTHER CONDITIONS <ul><li>THE AMALGAMATED CO. IS AN INDIAN CO. </li></ul><ul><li>EXCEPTION </li></ul><ul><li>IF SHARES OF INDIAN CO.HELD BY FOREIGN BEFORE MERGER AND SUCH FOREIGN CO. TAKEN OVER BY ANOTHER FOREIGN CO. </li></ul><ul><li>ATLEAST 25% OF THE FOREIGN CO. (BEFORE MERGER) TO BE SHARE HOLDERS OF THE NEW FOREIGN CO. </li></ul><ul><li>? WHAT IS THE BENEFIT TO THE AMALGAMATED CO. AMALGAMATING CO.(OLD CO.) </li></ul>
  52. 52. <ul><li>NO CAPITAL GAIN ON TRANSFER ON CAPITAL ASSETS BY THE TRANSFEROR CO. UNDER SEC 47(VI) OF I.T ACT </li></ul><ul><li>? CAN NEW CO. CARRY FORWAD AND SET OF LOSS AND DEPRECIATION </li></ul><ul><li>SEC 72 A TO BE FULFILLED </li></ul><ul><li>ACCUMULATED LOSSES REMAIN UNABSORBED FOR 3 OR MORE YEARS </li></ul><ul><li>75% OF BOOK VALUE TO BE HELD ATLEAST FOR 2 YEARS BEFORE AMALGAMATION </li></ul><ul><li>THE AMALGAMATED CO. CONTINUES TO HOLD 3/4 TH OF BOOK VALUE ATLEAST FOR 5 YEARS </li></ul><ul><li>NEW CO. SHOULD CONTINUE FOR ANOTHER 5 YEARS </li></ul><ul><li>NEW CO. SHOULD ACHIEVE ATLEAST 50%OF INSTALLED CAPACITY BEFORE END OF 5 YEARS AND SHOULD CONTINUE FOR 5 YEARS </li></ul>
  53. 53. <ul><li>6. THE NEW AMALGAMATED CO. SHOULD FURNISH TO ASSESSING OFFICER ABOUT PARTICULARS OF PRODUCTION </li></ul><ul><li>BENEFIT </li></ul><ul><li>THIS SCHEME IS ALSO APPLICABLE TO BANKING INSTITUTIONS </li></ul><ul><li>?TATA VOLTAS & KELVINATOR HYDERABAD DIVISION vs. CBDT </li></ul>
  54. 54. EXAMPLE <ul><li>A LTD AMALGAMATES WITH B LTD AS ON 2007 </li></ul>NO CAPITAL GAIN TAX & ACCUMULATED LOSSES & UNABSORBED DEPERICIATION CAN BE CARRIED FORWARD DOES NOT ATTRACT CAPITAL GAIN FOR A BUT NO GAIN FOR B NO BENEFIT TO A & B A MERGES WITH B (A GOES OUT) SATISFIES BOTH 2(1B) & 72 A SATISFIES 2(1B) BUT DOES NOT SATISFY 72 A DOES NOT SATISFY SEC 2(1B) & 72 A PARTICULARS
  55. 55. <ul><li>? If b merges with a & b goes out of market who gains under above 3 situations </li></ul><ul><li>? If a&b merge with c what are the tax implication under above situations </li></ul><ul><li>Assume b is a loss making co.& Have accumulated losses & unabsorbed depreciation </li></ul><ul><li>? If c is not an Indian co. </li></ul>
  56. 56. OTHER TAX BENEFITS <ul><li>Expenditure on amalgamation or de-merger – allowed under sec 35DD both revenue and capital expenditure allowed </li></ul><ul><li>Expenditure on scientific research can be carried forward </li></ul><ul><li>Expenditure on acquisition of patent rights copyrights – depreciation can be provided </li></ul><ul><li>Expenditure for obtaining license for tele-communication service can be written off </li></ul><ul><li>Preliminary expenses </li></ul><ul><li>Capital expenditure on family planning </li></ul><ul><li>Bad debts are allowed </li></ul>
  57. 57. Tax Concession To Share Holders Of Amalgamating Co. <ul><li>No capital gain tax provided, new co. is an Indian co.& Shareholders are acquired everything in shares </li></ul>
  58. 58. EXERCISE 40 70 MARKET PRICE 8 10 P/E RATIO 5 7 EPS 7,500 20,000 NO. OF SHARES 37,500 1,40,000 EAT CO. B CO. A PARTICULARS
  59. 59. <ul><li>Co. A is acquiring co. B Exchanging one share for every 1.5 shares of B ltd & p/e ratio will continue even after merger </li></ul><ul><li>? Are they better or worse of than they were before in merger </li></ul><ul><li>? Determine the range of minimum & maximum ratio between the two firms </li></ul><ul><li>? A is an Indian co. </li></ul><ul><li>? A is a foreign co. </li></ul><ul><li>? A merges with T & formed a new co. AT ltd </li></ul><ul><li>? What are the tax planning required before & after merger </li></ul>

×