Professional Documents
Culture Documents
Dept. of MBA
Lesson Plan
Semester – IV
Course Objectives:
Table - 1
Session Plan
Session No.
Module No
Cumulative Coverage
Contents Pedagogical Presentation Assignments
I 1 Course Outline: Mergers – in the Lecture Refer the Refer the # Class Discussion
nature of Acquisition, types of mergers, Table 2 Table 3 # Case Presentation
motives behind mergers
3-4 Course Outline: Synergy – meaning Lecture Refer the Refer the # Class Discussion
and types. Operating, financial and Problem solving Table 2 Table 3 # Case Presentation
managerial synergy of mergers
5 Course Outline: value creation in Lecture Refer the Refer the # Class Discussion
horizontal, vertical and conglomerate Problem solving Table 2 Table 3 # Case Presentation
mergers
II 8 Course Outline: M & A – A strategic Lecture Refer the Refer the # Class Discussion
perspective- industry life cycle analysis in Case Discussion Table 2 Table 3 # Test I
M&A decision
9 -10 Course Outline: Product life cycle Student Practical Refer the Refer the
analysis in M&A decision and strategic Presentation / Component Table 2 Table 2
approaches to M&A- SWOT analysis, BCG Participation
matrix
Cumulative Coverage
Pedagogical Presentation Assignments
Cumulative Coverage
Module No
Cumulative Coverage
Contents Pedagogical Presentation Assignments
31 Course Outline: Synergies from M&A: Lecture Refer the Refer the # Class Discussion
Operating and Financial synergy Cases Discussion Table 2 Table 3 # Test II
# Case Presentation
Course Objective: to understand the
Synergies from M&A
64%
Course Outcome: students will
understand the Synergies from M&A
32 Course Outline: Accounting for Lecture Refer the Refer the # Class Discussion
amalgamation – pooling of interest Cases Discussion Table 2 Table 3 # Test II
method, purchase method # Case Presentation
35-36 Course Outline: Problems on Mergers Lecture Refer the Refer the # Class Discussion
and Acquisition Cases Discussion Table 2 Table 3 # Test II
# Case Presentation
Course Objective: to solve Problems on
Mergers and Acquisition
37 Course Outline: Problems on Mergers Lecture Refer the Refer the # Class Discussion
and Acquisition Cases Discussion Table 2 Table 3 # Test II
# Case Presentation
Course Objective: to solve Problems on
Mergers and Acquisition
38 Course Outline: Problems on Mergers Lecture Refer the Refer the # Class Discussion
and Acquisition Cases Discussion Table 2 Table 3 # Test II
# Case Presentation
Course Objective: to solve Problems on
Mergers and Acquisition
Cumulative Coverage
Contents Pedagogical Presentation Assignments
39 Course Outline: Problems on Mergers Lecture Refer the Refer the # Class Discussion
and Acquisition Cases Discussion Table 2 Table 3 # Test III
Video # Case Presentation
Course Objective: to solve Problems on
Mergers and Acquisition
40 Course Outline: Problems on Mergers Lecture Refer the Refer the # Class Discussion
and Acquisition Cases Discussion Table 2 Table 3 # Test III
Video # Case Presentation
Course Objective: to solve Problems on Problem solving
Mergers and Acquisition
VI 42 Course Outline: Takeovers, types of Lecture Refer the Refer the # Class Discussion
takeovers Cases Discussion Table 2 Table 3 # Test III
Video # Case Presentation
Course Objective: to understand the,
types of takeovers.
43 Course Outline: Takeover strategies, Lecture Refer the Refer the # Class Discussion
Takeover defenses – financial defensive Cases Discussion Table 2 Table 3 # Test III
measures Video # Case Presentation
44 Course Outline: financial defensive Lecture Refer the Refer the # Class Discussion
measures – methods of resistance Cases Discussion Table 2 Table 3 # Test III
Video # Case Presentation
Course Objective: to understand the
methods of resistance
Cumulative Coverage
Contents Pedagogical Presentation Assignments
45 Course Outline: anti-takeover Lecture Refer the Refer the # Class Discussion
amendments – poison pills Cases Discussion Table 2 Table 3 # Test I
Video # Case Presentation
Course Objective: to understand the
anti-takeover amendments
88%
Course Outcome: students will
understand the anti-takeover amendments
available.
VII 46-47 Course Outline: Legal aspects of Lecture Refer the Refer the # Class Discussion
Mergers/amalgamations and Cases Discussion Table 2 Table 3 # Test I
acquisitions/takeovers- Combination and Video # Case Presentation
Competition Act
48 Course Outline: Competition Commission Lecture Refer the Refer the # Class Discussion
of India (CCI)- CCI Procedure in Regard to Cases Discussion Table 2 Table 3 # Test I
the transactions of Business Relating to Video # Case Presentation
combination of Regulations 2011
49-50 Course Outline: Scheme of Lecture Refer the Refer the # Class Discussion
Merger/Amalgamation-essential features of Cases Discussion Table 2 Table 3 # Test III
the scheme of amalgamation Video # Case Presentation
52 Course Outline: Approvals for the Lecture Refer the Refer the # Class Discussion
scheme-Step wise procedure- Cases Discussion Table 2 Table 3 # Test III
Acquisitions/Takeovers- Listing agreement- Video # Case Presentation
The SEBI Substantial Acquisition of Shares
and Takeover code
53 Course Outline: Approvals for the Lecture Refer the Refer the # Class Discussion
scheme-Step wise procedure- Cases Discussion Table 2 Table 3 # Test III
Acquisitions/Takeovers- Listing agreement- Video # Case Presentation
The SEBI Substantial Acquisition of Shares
and Takeover code
55 Course Outline: Case study Lecture Refer the Refer the # Class Discussion
Cases Discussion Table 2 Table 3 # Test III
Course Objective: to understand the Video # Case Presentation
concepts through case study
56 Course Outline: Case study Lecture Refer the Refer the # Class Discussion
Cases Discussion Table 2 Table 3 # Test III
Course Objective: to understand the Video # Case Presentation
concepts through case study
Syllabus Review A complete revision through the presentation by the students based on the
presentation topics
Table – 2
Presentation Topics
Assignment – 2:
Each student will be given one question each from
Question Bank from the following manner (One 2 marks
question, One 6 marks question and One 8 marks
question) from module 3 to 4.
Assignment – 3:
Each student will be given one question each from
Question Bank from the following manner (One 2 marks
question, One 6 marks question and One 8 marks
question) from module 5 to 6.
Case studies will be based on both previous year question paper & as well as live case, apart from the below mentioned cases it is
open to the students to come out with new cases happening in the course of time
Mod No Particulars
5&6 Question Paper, VTU, JULY 2014
5&6 Question Paper, VTU, December 2012 / January 2013
5&6 Question Paper, VTU, JULY 2013
5&6 Question Paper, VTU, December 2011 / January 2012
5&6 Question Paper, VTU, JULY 2011
5&6 Question Paper, VTU, December 2009 / January 2010
5&6 Question Paper, VTU, July 2009
5&6 Question Paper, VTU, December 2005 / January 2009
5&6 Question Paper, VTU, January / February 2008
J P Morgan & Manhattan case
UTI Bank and Global Trust Bank acquisition
Brook Bond Lipton & HLL case
Damodar cement merged with ACC cement casew
Acquisition of TOMCO by HLL
Bank of Madhura merging with ICICI Bank
Mohta steel industries merged with Vardhaman spinning mills
Table – 5
References & Additional Readings
Sl.No. Particulars
1 Fred Weston, Kwang S Chung, Susan E Hoag – Mergers, Restructuring and
Corporate Control – Pearson Education, 4/e
2 Mergers acquisitions and Business valuation – Ravindhar Vadapalli – Excel books, 1/e
2007
3 Ashwath Damodaran – Corporate Finance-Theory and Practice – John Wiley & Sons
4 Shukla & Grewal- Advanced Accounts Vol 2 – S.Chand & Sons, Recommended book
for module-6
For Internal Evaluation T1 marks and the best out of remaining two will be considered.
Question Bank
14MBAFM407: MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
3 Marks Questions:
31. Calculate the value of the firm using dividend growth valuation model from the following information of Rom
Company Ltd., during the recent year the company had a net income of Rs.2, 00,000 and paid a dividend of Rs.1,
00,000. The earnings and dividends are expected to grow at an annual rate of 20% for 3 years after which they will
grow at 8% for ever with annual retention continuing at 50% of net income. The required return on an investment with
the risk characteristics of the company stock is 16 percent.
32. The chemical and fertilizer limited, is a growing company. Its free cash flows for equity holders (FCFE) have been
growing at a rate of 25 per cent in recent years. This abnormal growth rate is expected to continue for another 5 years
then these FCFE are likely to grow at the normal rate of 8 per cent. The required rate of return on these shares, by the
investing community, is 15 per cent. The firm’s weighted average cost of capital is 12 per cent. The amount FCFE per
share at the beginning of the current year is Rs.30. Determine the maximum price an investor should be willing to pay
now (t=0) based on free cash flow approach. The issue price of share is Rs.500.
33. The relevant financial detail of two firms just prior to merger announcement areas follows:
Day Ltd., Night Ltd.,
Market price per share Rs.65 Rs.30
No. of shares 8,00,000 5,00,000
Market value of the firm Rs.520,00,000 Rs.150,00,000
The merger is expected to bring gains which have a present value of Rs.120,00,000. Day Ltd., offers 2,46,000 shares in
exchange for 5,00,000 shares to the shareholders of the firm Night Ltd. Assuming that the market value of two firms
just before the merger announcement are equal to their present value as separate entities. Calculate the NPV to Day
Ltd., and Night Ltd., respectively.
34. Mona Ltd is planning to acquire Sona Ltd., provided there is synergy in the acquisition, which will result in Mona Ltd.,
reporting an EPS of at least of Rs.2.75. Consider the following financial data:
There is no immediate gain in the merger though there will be long term synergies. Compute the exchange ratio, which
will raise the post-merger EPS of Mona Ltd., to Rs.2.75.
35. Rahul international is keen on reporting EPS of Rs.3.50 after acquiring Overseas Corporation. The following data is
available:-
There is no gain from merger. What exchange ratio will raise the post-merger EPS of Rahul International to Rs. 3.50?
10 Marks Questions:
1. Briefly explain the differential efficiency and inefficient management theory of mergers.
2. What are the benefits of pure diversification?
3. Explain the concepts Horizontal, Vertical and Conglomerate mergers. Illustrate your answer with suitable examples in the
Indian context.
4. Explain in detail the various reasons responsible for the failure of a merger. How does the ‘bootstrapping phenomenon’
affect the valuation of a firm in mergers?
5. Explain efficiency theories of merger.
6. Explain the difference between managerial synergy, operating and financial synergy and their relationship to different types
of mergers.
7. Discuss the motives behind ‘Mergers and Acquisitions’.
8. Write a brief not on post-merger integration.
9. How does industrial life cycle influence restructuring activities?
10. Explain various reasons for Corporate Restructuring.
11. What is joint venture? What are the different rationale be behind a joint venture and what are the common reasons for
failure of joint ventures?
12. Explain the term joint venture. Do you accept that the joint ventures in India are successful?
13. Compare and contrast between spin-off and equity carve outs.
14. Explain various forms of corporate restructuring. Explain the nature of MLPs. How is an MLP different from a
corporation? What are the different MLPs identified?
15. What is LBO? Explain the different stages of LBO operation.
16. Explain the 5 steps to be taken care off before an acquisition is under taken.
17. Explain 5 pitfalls of acquisition.
18. Explain the method of determining the purchase consideration with suitable illustration on your own.
19. State the features of purchase method and polling method of accounting treatment of M & A of a firm with an illustration.
20. A firm can invest Rs.18, 00,000 in a certain project now to receive Rs.4, 00,000 per year for the next 10 years. The cost of
capital for this project is 14%. What is the NPV of the project? What is its IRR? How are NPV and IRR used as capital
budgeting decisions on mergers and acquisitions?
21. The free cash flow of a firm is projected to grow at a compound annual average rate of 35% for the next 5 years. Growth is
then expected to slow down to a normal 5% annual growth rate. The current year’s cash flow to the firm is Rs.4, 00,000.
The firm’s cost of capital during the high growth period is 18% and 12% beyond the fifth year, as growth stabilizes.
Calculate the value of the firm.
22. Company A proposes to acquire company B by offering two of its shares for every five shares of company B. Financial
data available are given below:
Market capitalization (Rs.) 10,000,000 10,000,000
PAT (Rs.) 2, 00,000 5, 00,000
P/E 50 20
EPS (Rs.) 2 2
MPS (Rs.) 100 40
No. of shares 1, 00,000 2, 50,000
For the combined company, after merger, find (i) EPS; (ii) P/E ratio; (iii) MPS; (iv) no. of shares; (v) total market
capitalization.
23. Grand Company Ltd. is being acquired by Gorgeous Co. Ltd., on a share exchange basis. The data extracted from the
companies are given below:
Gorgeous Grand
Determine: Profit after tax 65,00,000 25,00,000
Number of shares 12,00,000 10,60,000
Earnings per share 6.0 2.5
Price Earnings ratio 14.5 9.5
i) Pre-merger Market Value per share.
ii) The maximum exchange ratio Gorgeous Company should offer without the dilution of (a) EPS (b) Market value
per share.
24. A Ltd wants to acquire T Ltd by exchanging 0.5 of its shares for each share of T Ltd. The relevant financial data are as
follows.
A Ltd. T Ltd.
EAT Rs.18,00,000 Rs.3,60,000
Equity Shares outstanding 6,00,000 1,80,000
EPS Rs.3 Rs.2
P/E Ratio 10 7
Market price per share Rs.30 Rs.14
25. PQ Ltd. wants to acquire MN Ltd. by exchanging its 1.6 shares for every share of MN. It anticipates to maintain the
existing P/E ratio subsequent to the merger also. The relevant financial data are furnished below:
PQ Ltd MN Ltd
Earnings after Tax (Rs) 15,00,000 4,50,000
Number of equity shares outstanding 3,00,000 75,000
Market price per share (Rs) 35 40
a) What is the exchange ratio based on market price?
b) What is pre-merger EPs and P/E for each company?
c) What is the P/E ratio used in acquiring MN?
d) What will be the EPs of PQ after the acquisition?
e) What is the expected market price per share of the merged company?
26. Alpha Leather Co. Ltd. is evaluating the possibility of acquiring Beta Leather Co. Ltd. The following are the data for two
companies:
Alpha Beta
Profit after tax 5,47,500 99,000
EPS 7.30 2.20
DPS 4.20 1.20
Number of shares 75,000 45,000
Total Market Capitalization 100,00,000 1,35,0000
a) Calculate the Price-Earnings ratio of both the companies before merger.
b) Beta Co. Ltd’s earnings and dividends are expected to grow at 7.5% without merger and at 10% with
merger.
Compute:
a) Gain from the merger
b) The cost of the merger if Beta Ltd., is paid cash of Rs.40 per share, and
c) The cost of merger if the share exchange ratio is 0.25.
27. XYZ company is considering merging with ABC Co. XYZ’s shares are currently traded at Rs.25, it has 2, 00,000 shares
outstanding, and its earnings after taxes amount to Rs.4, 00,000. ABC has 1, 00,000 shares outstanding; current market
price is Rs.12.5, and its earnings after taxes are Rs.1, 00,000. The merger will be effected by means of stock swap
(exchange). ABC has agreed to a plan under which XYZ will offer the current market value for ABC shares, (i.e., if XYZ
shares current market value is Rs.25 and that of ABC as Rs.12.5, the exchange ratio will be Rs.25/12.5=2).
i. What is the pre-merger EPS and P/E ratio of both the companies?
ii. If ABC’s P/E ratio is 8, what is its current market price? What is the exchange ratio? What will XYZ’s post-merger
EPS be?
iii. What must the exchange ratio be for XYZ’s pre and post-merger EPS to be the same?
28. ABC Ltd is planning to acquire XYZ Ltd. XYZ is full equity firm. The earnings after tax of XYZ Ltd during this year
amounted to Rs.50 crores and company paid dividends of Rs.40 crore. The earnings of XYZ are expected to grow at 25%
every year for the next five years; after which A will grow at 15% every year for another five years. The earnings are
expected to grow at a constant rate of 8% per annum for ever after 10 years from now. XYZ is expected to maintain the
current payout ratio. Compute the price that ABC should pay using dividend discount model. (Use a discount rate of
12%).
Company B has agreed to purchase Company A at Rs.6, 61,500/- to be paid in fully paid equity shares of Rs.10/- each.
Prepare journal entries to close the books of accounts of A Ltd and also prepare the realization and equity share holder’s
account.
30. The W Co. Ltd., is absorbed by the U Co. Ltd., the consideration being:
31. The following is the Balance Sheet of W Co. Ltd., on the date of transfer:
Balance Sheet
Liabilities Amount Assets Amount
Share capital 3,00,000 Good will 25,000
60,000 share of Rs.5 each
General reserve 32,000 Land and Building 75,000
Profit and loss a/c 13,000 Plant and Machinery 2,20,000
Accident insurance fund 5,000 Patents 5,000
5% debentures 1,50,000 Patterns and drawings 2,500
Sundry creditors 20,000 Stock in trade 1,06,000
Sundry Debtors 45,000
Investments 5,000
Cash at bank 36,500
5,20,000 5,20,000
Close the books of W Co. Ltd., by passing the necessary journal entries.
32. The balance sheet of XYZ Co. Ltd as on 31st March (Current year) is as follows.
The company is to be absorbed by ABC Co., Ltd at the above date. The consideration for absorption is the discharge of
debentures at a premium of 10%, taking over the liability in respect of sundry creditors and a payment of Rs.14 in cash
and one share of Rs.10 in ABC Ltd at the Market value of Rs.16 per share in exchange for one share in XYZ Co., Ltd.
The cost of dissolution of Rs.10, 000 is to be met by the purchasing company. Inventories are expected to realize Rs.1,
00,000, and expected collections from debtors are Rs.20, 000.
Expected yearly benefits (CFAT) from the business of XYZ Ltd are Rs.1, 50,000 for five years. Assuming zero salvage
value of its fixed assets, and firms cost of capital at 14%. Comment on the financial soundness of the ABC’s decisions
regarding the merger.
34. Describe in detail the various defensive tactics adopted by a firm to defend itself from a hostile takeover.
35. Discuss the defense mechanism used by the target company in case of takeover.
36. Briefly explain preventive anti-takeover defense measures undertaken by firms in case of hostile takeover.
37. Elucidate the legal procedures to be complied with as laid down in the Companies Act 1956, for mergers and acquisitions.
38. Discuss the salient features of SEBI takeover code. Do you agree that SEBI is successful in controlling the takeovers?