Question

Mighty soft Ltd. plans to acquire Techwire Ltd by offering its shares as compensation to the shareholders of Techwire Ltd... The Following information is provided:

For the FY 18-19 (ending 31st March)	Techwire Limited	Mighty soft Limited
Profit after tax (Rs. million)	16,155	25,241
Equity Shares Outstanding (million shares)	218	191
P/E ratio	18	14.6
Shareholders’ Equity (Rs. Million)	63,502	75,866

            Required:

	i) Determine the number of equity shares to be issued by Mighty soft for the acquisition of Techwire using the Share Exchange Ratio based on        a) MPS   v       b) EPS               c) Book Value
	ii) What is the EPS of Techwire Ltd. after the acquisition under the above share exchange plans if no synergies are expected?
	iii) If Mighty soft decides to offer 20% premium to Techwire and the payment is done in 50% cash and 50% stock, what will be EPS of Mighty soft if no synergies are expected.

Answer 1

As per the data given in the question,

From the above table we can calculate the following:

i) Number of equity shares to be issued by Mighty soft for the acquisition of Techwire using the Share Exchange Ratio based on

a) MPS = (MPS of Techwire Limited * Equity Shares Outstanding of Techwire Limited) / MPS of Mighty soft Limited

              = (1333.90 * 218) / 1929.42

              = 151

b) EPS = (EPS of Techwire Limited * Equity Shares Outstanding of Techwire Limited) / EPS of Mighty soft Limited

              = (74.11 * 218) / 132.15

              = 122

c) BPS = (BPS of Techwire Limited * Equity Shares Outstanding of Techwire Limited) / BPS of Mighty soft Limited

              = (291.29 * 218) / 397.20

              = 160

ii) Since, no synergies are expected after the acquisition the PAT of Techwire Ltd. will remain 16,155 (Rs. million)

   As per above share exchange plans the new qty of Equity Shares Outstanding of Techwire Limited is,

       a) In case of MPS scheme N_MPS= 151 + 191 = 342

       b) In case of EPS scheme N_EPS= 122 + 191 = 313

       c) In case of BPS scheme N_BPS= 160 + 191 = 351

So, EPS of Techwire Ltd. after the acquisition under the above share exchange plans is given in the table below:

       a) In case of MPS scheme EPS_MPS = PAT of Techwire Limited / N_MPS = 16,155 / 342 = 47.28

       b) In case of EPS scheme EPS_EPS = PAT of Techwire Limited / N_EPS = 16,155 / 313 = 51.57

       c) In case of BPS scheme EPS_BPS = PAT of Techwire Limited / N_BPS = 16,155 / 351 = 46.04

iii) If Mighty soft decides to offer 20% premium to Techwire and the payment is done in 50% cash and 50% stock,

        Then new PAT of Mighty Soft = 25,241 + 16,155 + (16,155*0.2)/2 = 43,011.5

   So, EPS of Mighty soft if no synergies are expected, will be;

       a) In case of MPS scheme EPS_MPS = new PAT of Mighty Soft / N_MPS = 43,011.5 / 342 = 125.87

       b) In case of EPS scheme EPS_EPS = new PAT of Mighty Soft / N_EPS = 43,011.5 / 313 = 137.31

       c) In case of BPS scheme EPS_BPS = new PAT of Mighty Soft / N_BPS = 43,011.5 / 351 = 122.58