Comment on the effects of merger for shareholders

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Reference no: EM133112016

Two companies operating in the industry where one company A Ltd decides to acquire B Ltd @ Rs 25 per share and the following information is available:

PARTICULARS

A LTD

B LTD

Present Earnings (Rs)

200,00,000

100,00,000

Shares Outstanding

100,00,000

50,00,000

EPS (Rs)

2.00

2.00

Price per share (Rs.)

40

38

P/E Ratio

20.00

19.00

Post-acquisition the new combined entity will have

Total combined earnings (Rs)   

3,00,00,000 OR 3 crores

Total Shares outstanding

1,31,25000

EPS for Combined entity (Rs.)

2.28

Based on the above details, comment on the effects of merger for shareholders of A Ltd and B Ltd. Would you advise both shareholders to approve the merger.

Reference no: EM133112016

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