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

Shree Textiles Ltd and Anand Fabrics Ltd plan to merge. The board of Shree Textiles asks a registered valuer to compute the share exchange ratio. Which statement best describes what the share exchange ratio represents?

The share exchange ratio states how many shares of the transferee company are issued to shareholders of the transferor company for each share they hold, based on the relative per-share values of the two companies, not on face value or debt.

  1. AThe number of shares of the transferee company to be issued for a given number of shares held in the transferor companyCorrect
  2. BThe ratio of the face values of the shares of the two companies
  3. CThe ratio of total debt of the transferor to that of the transferee company
  4. DThe proportion of cash paid to dissenting shareholders of the transferor company

Explanation

The share exchange ratio is derived from the relative values per share of the merging companies and fixes how many transferee shares are issued per transferor share. Face values are only one input and do not determine the ratio. Debt ratios and cash to dissenters are unrelated to it.

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