CMA Final · Strategic Performance Management and Business Valuation · Valuation in Mergers and Acquisitions
Surya Ltd. has 10 lakh shares at a market price of Rs 80 and plans to acquire Tara Ltd., which has 4 lakh shares at Rs 50. Surya offers Rs 60 per Tara share, to be paid wholly in Surya shares at its market price of Rs 80. What is the exchange ratio (Surya shares per Tara share)?
The exchange ratio is 0.75 Surya shares for each Tara share. The offer price of Rs 60 per Tara share is divided by Surya's market price of Rs 80. Using Tara's current Rs 50 price would ignore the premium being offered.
- A0.625
- B0.75Correct
- C1.60
- D1.33
Explanation
Offer price Rs 60 divided by acquirer price Rs 80 gives 0.75 Surya shares per Tara share. 0.625 uses Tara's current price Rs 50 over Rs 80. 1.33 inverts the ratio the wrong way.
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