Mergers and Acquisitions-Tax impact and valuation

Roles of Management Graduates in Mergers and Acquisitions By Prof. Augustin Amaladas M.Com.,AICWA.,PGDFM.,B.Ed . For IMIS Bhubaneshwar 28/04/08 –at 9.20 AM

Issues related to Mergers and Acquisitions. ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Recent Mergers and Acquisitions ,[object Object],[object Object],[object Object]

The Hutch and Vodafone merger ,[object Object],[object Object],Vodafone(Briton) A Foreign company HTIL( Whampoa group of Li-Ka Shing. Hong Kong A foreign company 67% Takes over Asim Ghosh-12% A.Singh and other companies (Minority) Essor group

INCOME TAX RELATED ISSUES FOR AMALGAMATION ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

OTHER CONDITIONS ,[object Object],[object Object],[object Object],[object Object],[object Object]

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[object Object],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

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Tax Concession To Share Holders Of Amalgamating Co. ,[object Object]

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

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CONCLUSIONS ,[object Object],[object Object],[object Object]

CONCLUSION ,[object Object],[object Object]

Conclusion ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Some Facts-USA Companies ,[object Object],[object Object],[object Object],[object Object]

Standard Oil(SO) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

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Some Facts ,[object Object],[object Object],[object Object],[object Object]

1965-69 in USA ,[object Object],[object Object],[object Object],[object Object],[object Object]

EXERCISE ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

PRICE EARNING RATIO APPROACH ,[object Object],[object Object],[object Object],[object Object],[object Object]

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

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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

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

ACCOUNTING FOR AMALGAMATION ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Life Education ,[object Object]

Pricing of Capital issues ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Method II(Liability Approach) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

2.Profit Earning Capacity Value-PECV ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

4.Average Market Price ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

5. Capitalisation rate ,[object Object],[object Object],[object Object],[object Object]

PE- Multiple ,[object Object],[object Object]

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