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CS Professional · Corporate Restructuring, Valuation and Insolvency · Planning and Strategy

Ganga Foods Ltd (Rs 10 face value) will merge with Yamuna Beverages Ltd. Ganga's value per share is assessed at Rs 180 and Yamuna's at Rs 120 under the same method. Ganga has 8 lakh shares. Yamuna will issue its own shares to Ganga's shareholders at these values. How many new shares will Yamuna issue, and what is the swap ratio per Ganga share?

Yamuna issues 12 lakh new shares at a ratio of 1.5 shares per Ganga share. The exchange ratio is the acquired company's value per share divided by the acquirer's value per share, 180 divided by 120, applied to Ganga's 8 lakh shares.

  1. A9.60 lakh shares; 1.2 shares for every 1 held
  2. B12.00 lakh shares; 1.5 shares for every 1 heldCorrect
  3. C5.33 lakh shares; 0.67 share for every 1 held
  4. D12.00 lakh shares; 0.67 share for every 1 held

Explanation

Swap ratio = 180/120 = 1.5 Yamuna shares per Ganga share. New shares = 8 lakh x 1.5 = 12 lakh. The inverted ratio of 0.67 (120/180) is the common error and gives 5.33 lakh shares. Option 9.60 lakh uses an arbitrary 1.2 ratio. Mixing 12 lakh with 0.67 is internally inconsistent.

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