Seat No.: ________ Enrolment No.
___________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA – SEMESTER - IV – EXAMINATION – WINTER 2021
Subject Code: 4549222 Date: 24/12/2021
Subject Name: Corporate Restructuing and Valuation
Time:10:30 AM TO 01:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q. Question Text and Description Marks
No.
Q.1 Define the following terms: 14
(a) Tender Offers
(b) Transaction Analysis
(c) ESHOPs
(d) White knight & poison put
(e) Reverse merger
(f) LBO & MBO
(g) Green mail & crown jewel
Q.2 (a) Explain the various approaches to corporate valuation in detail. 07
(b) What do you mean by take over? Explain the benefits of takeover and its 07
disadvantages in detail.
OR
(b) Define Corporate Restructuring. Explain various forms of corporate restructuring in 07
detail.
Q.3 (a) What do you mean by takeover? Explain various anti takeover tactics/strategies. 07
(b) Firm A is planning to acquire Firm B. The relevant financial information of the two 07
firms prior to the merger announcement are as follows:
particulars Firm A Firm B
Market Price per share Rs. 75 Rs. 30
Number of shares 1000000 500000
Market value of the firm 7,50,00000 1,50,00000
The merger is expected to bring gains which have present value of Rs.1.5 crore. Firm
A Offers 250000 shares in exchanging for 5 lakh share to the shareholders of firm B.
You are required to determine:
(i) Total value of Firm AB (PVAB) after Merger
(ii) Gains to the share holders of firm A
(iii) True cost of acquiring Firm B and net present value of the merger to Firm
B.
OR
Q.3 (a) Explain the various motives and barriers for corporate restructuring 07
(b) What do you mean by LBO and MBO? Explain the common characteristics of LBO 07
and Motivation behind LBOs.
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Q.4 (a) What do you mean by acquisition? Discuss the motives behind merger. How 07
acquisition is different from takeover? Explain the various types of acquisition.
(b) Company X wishes to Take over the Company Y. The financial details of the two 07
companies are as under:
Particulars Company X Company Y
Equity shares ( Rs. 10per 100000 50000
share)
Shar premium account …….. 2000
P & L account 38000 4000
Preference shares 20000 …..
10% debentures 15000 5000
total 173000 61000
Total Assets 173000 35000
Maintainable annual 24000 15000
profits(after tax) for equity
shareholders
Market Price per share 24 27
Price earnings ratio 10 9
Determine the exchange ratio for this take over.
OR
Q.4 (a) Discuss the Divestiture in detail. Explain different forms of divestment 07
(b) The Xyz Ltd. wants to Acquire ABC Ltd. by exchanging its 1.6for every share of ABC 07
Ltd. It anticipates to maintain the existing P/E ratio subsequent to the merger also. The
relevant financial data are as under:
XYZ Ltd. ABC Ltd.
Earnings after taxes (EAT)(Rs.) 1500000 450000
Number of equity shares outstanding 300000 75000
(N)
Matket Price per share (MPS)(Rs) 35 40
What is the exchange ratio based on market prices?
What is the premerger EPS and P/E ratio of each company?
What is EPS of XYZ company after acquisition?
What is expected market price per share of merged company?
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Q.5 The Hypothetical Limited wants to acquire Target Ltd. The balance sheet of Target
Ltd. as on March 31st (current Year) has the following assets and Liabilities:
(Rs. In Lakh)
Liabilities Amount Assets Amount
Equity share capital( 400 Cash 10
4 lakh shares of Rs.
100 each)
Retained Earnings 100 Debtors 65
10.50% Debentures 200 Inventories 135
Creditors and other 160 Plant and 650
Liabilities Equipments
860 860
Additional information:
The shares of Target Ltd. will get 1.5 shares in Hypothetical Ltd. for every
share; the shares of Hypothetical Ltd. would be issued at its current market
price of Rs. 180 per share. The debenture holders will get 11% debenture of the
same amount. The external liabilities are expected to be steeled at Rs. 150
Lakh. Dissolution expenses of Rs. 15 lakh are to be met by the acquiring
company.
The following are projected incremental Free Cash flows(FCFF) expected from
acquisition for 6 years (Rs. Lakh):
Year -end Rs. In Lakh
1 150
2 200
3 260
4 300
5 220
6 120
The free cash flow of Target Limited is expected to grow at 3% per annum,
after 6 years.
Given the risk complexion of Target Limited, cost of capital for Target Limited
cash flows has been decided at 13%
There is unrecorded liability of Rs. 20 lakhs
(a) Determine Cost of acquisition of Target Limited. 07
(b) What is the present value of FCFF? 07
OR
Q.5 (a) Determine the PV of FCFF and Terminal Value. 07
(b) Is it is assumed that the cost of acquisition is Rs. 900 Lakh, What is the value of 07
Benefit of acquisition to the Hypothetical Limited.
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