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CS Professional · Corporate Restructuring, Valuation and Insolvency · Valuation of Business and Assets for Corporate Restructuring

In a merger, Company A (transferor) has a fair value per share of Rs 150 and Company B (transferee) has a fair value per share of Rs 200. Both have shares of face value Rs 10. Using relative fair values, how many shares of B should be issued for every 4 shares held in A?

Three shares of B should be issued. The ratio is A's value of Rs 150 divided by B's value of Rs 200, giving 0.75 B share per A share, so 4 A shares worth Rs 600 are exchanged for 3 B shares worth Rs 600.

  1. A3 sharesCorrect
  2. B5 shares
  3. C4 shares
  4. D6 shares

Explanation

Exchange ratio = 150/200 = 0.75 share of B per share of A. For 4 shares of A, 4 x 0.75 = 3 shares of B. Check: 4 x 150 = Rs 600 equals 3 x 200 = Rs 600. Choosing 5 inverts the ratio (200/150 x 4 is about 5.33, rounded).

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