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CA Final · Advanced Financial Management · Mergers, Acquisitions and Corporate Restructuring

Rohan Ltd (EPS ₹20, P/E 15, 10 lakh shares) acquires Meera Ltd (EPS ₹10, 5 lakh shares) by issuing shares at Rohan's market price in exchange ratio 1:1 (one Rohan share for each Meera share). No synergy is assumed. What is the post-merger EPS of the combined firm?

Post-merger EPS is ₹16.67. Combined earnings are ₹200 lakh plus ₹50 lakh, equal to ₹250 lakh. Shares outstanding after issuing 5 lakh new shares total 15 lakh. Dividing 250 lakh by 15 lakh gives ₹16.67, a dilution from Rohan's earlier ₹20.

  1. A₹16.67Correct
  2. B₹15.00
  3. C₹20.00
  4. D₹13.33

Explanation

Rohan earnings = 20 × 10 lakh = ₹200 lakh. Meera earnings = 10 × 5 lakh = ₹50 lakh. Combined earnings = ₹250 lakh. New shares = 10 + 5 = 15 lakh. EPS = 250/15 = ₹16.67. Using ₹15 would wrongly take a simple average of 20 and 10.

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