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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Advanced Financial Management

Case: Veda Polymers Ltd, a listed company, plans to acquire Kiran Plastics Ltd. Veda has 10,00,000 shares at a market price of Rs 120. Kiran has 4,00,000 shares at a market price of Rs 60. Veda offers a share exchange ratio of 1 Veda share for every 2 Kiran shares. Expected annual synergy is Rs 30,00,000 (capitalised value Rs 1,50,00,000). What is the number of new shares Veda must issue?

Veda must issue 2,00,000 new shares. Kiran has 4,00,000 shares, and each Veda share is offered for two Kiran shares, so the shares issued equal 4,00,000 divided by 2. Using a one-for-one ratio or multiplying by two would give wrong figures.

  1. A2,00,000 sharesCorrect
  2. B4,00,000 shares
  3. C8,00,000 shares
  4. D1,00,000 shares

Explanation

Exchange ratio is 1 Veda share per 2 Kiran shares. New shares = 4,00,000 / 2 = 2,00,000. Option 4,00,000 wrongly assumes a 1:1 ratio. Option 8,00,000 multiplies by 2 instead of dividing.

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