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

Sagar Ltd (transferor) has 2,00,000 shares valued at Rs 90 each. Tapti Ltd (transferee) has 5,00,000 shares valued at Rs 120 each. After the merger, Sagar's shareholders receive Tapti shares on relative values. What percentage of the merged company's equity will Sagar's former shareholders hold?

Sagar's former shareholders will hold about 23.1%. The ratio is 0.75, so 1,50,000 new shares are issued against 5,00,000 existing, making 6,50,000 in total. The same result follows from values: Rs 1.8 crore out of Rs 7.8 crore combined.

  1. AApproximately 23.1%Correct
  2. BApproximately 28.6%
  3. C40%
  4. DApproximately 30.0%

Explanation

Exchange ratio = 90/120 = 0.75. New shares issued = 2,00,000 x 0.75 = 1,50,000. Total shares = 5,00,000 + 1,50,000 = 6,50,000. Holding = 1,50,000/6,50,000 = 23.08%. Check by value: Sagar Rs 1.8 crore, Tapti Rs 6 crore, so 1.8/7.8 = 23.08%. The 28.6% figure compares the new shares with the existing Tapti shares only (1.5/5 is 30%, a similar error), not the merged total.

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