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CS Professional · Corporate Restructuring, Valuation and Insolvency · Overview of Business Valuation

Meera Industries Ltd. wants to know why valuation is needed before a scheme of amalgamation with Nanda Ltd. Which is the most relevant purpose of valuation in this situation?

In an amalgamation, valuation is needed mainly to determine a fair share exchange ratio between the shareholders of the two companies, based on their relative values. Matters like registered office, auditor appointment and board size are governance issues, not purposes of valuation.

  1. ATo decide the registered office address of the transferee company
  2. BTo determine a fair share exchange ratio between shareholders of the two companiesCorrect
  3. CTo appoint the statutory auditor of the merged company
  4. DTo fix the number of directors of the merged company

Explanation

In a merger, shareholders of the transferor receive shares of the transferee, so the relative values of both companies must be established to fix a fair exchange ratio. Registered office, auditor and board size are governance matters unrelated to valuation.

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