Types of Mergers, Reasons of Mergers & Acquisitions, Types of Takeovers, Exchange Ratio based on MPS, EPS , P/E Ratio, Net asset value method, Post merger EPS

1. Instructor Name- Ms. Pooja Matlani

2. M&A involves the process of combining two companies
into one. The goal of combining two or more businesses
is to try and achieve synergy – where the whole (new
company) is greater than the sum of its parts (the former
two separate entities).

3. Acquisitions occur when one company buys
another company and folds it into its operations.
Sometimes the purchase is friendly and sometimes
it is hostile,

4. Forms of Merger
• Merger through Absorption: When two or more
entities are combined, into an existing company, it is
known as merger through absorption. In this type of
merger, only one entity survive after the merger,
while the rest of all cease to exist as they lose their
identity.

5. Merger through Consolidation: When two or more
companies fuse to give birth to a new company, it is
known as merger through consolidation. This implies
that all the companies to the merger are dissolved, i.e.
they lose their identity and a new company is created.

6. Example of Horizontal merger

8. A classic example of a vertical merger would be between
eBay and PayPal in 2002. eBay is an online shopping and
auction website and PayPal provides services to transfer
money and allow users to make online payments.
Though both eBay and PayPal were operating in dissimilar
businesses the merger helped eBay to increase the
number of transactions

9. Larsen & Turbo (L&T) is the India’s largest engineering
company with expertise in wide area like infrastructure, oil
and gas, power and process. And Voltas, a Tata group
company, is a major player in the electro-mechanical
Engineering.
Conglomerate merger of L&T with Voltas
A conglomerate merger is a merger between firms that
are involved in totally unrelated business activities

10. Reasons of mergers and acquisitions:-
• eliminating competitors (through acquisition)
• synergy (companies operating in the same space can
leverage each other's strengths, gaining competitive
advantage or a larger market share
• diversifying offering/services
• cutting costs

14. A hostile takeover bid occurs when an entity
attempts to take control of a firm without the
consent or cooperation of the target company's
board of directors

15. Example of Hostile Takeover

18. 1. Exchange Ratio based on MPS = Target
company's Market price / Acquirer
company's Market price
2. Exchange Ratio based on Eps= Target
company's EPS/Acquiring company's EPS
3. Exchange Ratio based on P/E Ratio=
Target company's PE Ratio/ Acquiring
company's P/E Ratio
Formula of Exchange Ratio

19. NET ASSET VALUE Method= (All Assets are takenover at
(Market Value) - Outstanding Liabilities)/ No. of equity
shares
4. Exchange Ratio based on NAV method= Target firm's
NAV/ Acquiring firm's NAV
5. New shares to be issued by Acquiring company =
Exchange Ratio* No. Of shares of Target company
6. Total shares= (Old shares of Acquiring firm+ New
shares issued by Acquiring firm to Target firm)
7.Post merger EPS= (NPAT of Acquiring firm+ NPAT of
Target firm)/ Total shares