CA Final · Advanced Financial Management · Mergers, Acquisitions and Corporate Restructuring
Aarav Ltd (value Rs 400 crore) plans to acquire Veda Ltd (value Rs 150 crore) as separate firms. The combined firm is expected to be worth Rs 610 crore due to cost savings. Aarav will pay Rs 175 crore in cash for Veda. What is the net present value of the merger to Aarav's shareholders?
The merger NPV to Aarav's shareholders is Rs 35 crore. Synergy is 610 minus 550, which equals Rs 60 crore, and from this the acquirer deducts the Rs 25 crore premium paid over Veda's standalone value of Rs 150 crore.
- ARs 60 crore
- BRs 35 croreCorrect
- CRs 25 crore
- DRs 85 crore
Explanation
Synergy = 610 - (400 + 150) = Rs 60 crore. Premium paid = 175 - 150 = Rs 25 crore. NPV to acquirer = 60 - 25 = Rs 35 crore. Rs 60 crore ignores the premium paid, while Rs 25 crore is only the premium.
Did you get it right without looking?
One question tells you little. A timed set on Mergers, Acquisitions and Corporate Restructuring shows your real accuracy, how long you take and where you lose marks.
More Mergers, Acquisitions and Corporate Restructuring questions
- In a management buyout (MBO), which feature most directly distinguishes it from a general leveraged buyout by a financial sponsor?
- Arohan Partners acquires Dhanush Pumps Ltd. in an LBO for ₹120 crore using ₹84 crore of debt at 10% p.a. and ₹36 crore equity. Dhanush's ann…
- Arjun Capital plans to buy Bharat Tools Ltd for an enterprise value of Rs 200 crore. It will fund 75% through debt and the balance through i…
- Which statement best describes a leveraged buyout (LBO) as taught in corporate restructuring?
- Aarav Pharma Ltd acquires its own raw-material supplier, Bhavna Chemicals Ltd, to secure input supply and reduce procurement costs. How is t…
- Which statement best describes a leveraged buyout (LBO)?