CHIMANBHAI PATEL INSTITUTE OF MANAGEMENT & RESEARCHMBA SEMESTER- IV

Internal Evaluation Examination: May 2012Name of subject: Mergers & Acquisitions

Date: 02/05/2013 [Time: 10.30 AM – 1.30 PM] Total Marks: 70

Instructions: All questions carry equal marks.

Q-1 Explain the following terms in brief: (a) What is corporate restructuring? Explain various forms of corporate

restructuring.(07)

(b) What are the various areas in which due diligence is carried on? Explain each in brief. Highlight the common aspects examined in Due Diligence by the acquirer team in corporate Restructuring.

(07)

Q-2(a) X Ltd and Y Ltd agreed to amalgamate their business by transferring their

Undertaking to a new company, XY Ltd. On the date of amalgamation,balance sheets of the two companies were as under :

Liabilities X Ltd. Y Ltd. Assets X Ltd. Y Ltd.Equity Share

Capital (Rs. 10

each)

5,00,000 3,00,000 Fixed Assets

4,80,000 2,50,000

Reserves ------ 50,000 Property 2,00,000 1,00,000P & L A/c 30,000 20,000 Investments 50,000 20,000

5% Debentures

2,00,000 1,00,000 Debtors 2,50,000 1,50,000

Mortgage Loan

50,000 ------ Preliminary Expenses

20,000 80,000

Creditors 2,20,000 1,30,00010,00,000 6,00,000 10,00,000 6,00,000

Purchase consideration consisted of the following:Discharge of debentures of both companies by the issues of equivalent amount of 6% debentures in XY Ltd.Liabilities of both companies will be taken over by the new company.The issue of equity shares of Rs. 10 each in XY Ltd. at a premium of Rs. 2 per share.For the purpose of amalgamation, the assets were valued at under:

Assets X Ltd. Y Ltd.Goodwill 1,00,000 75,000Property 2,60,000 1,40,000Investments 51,000 20,000Fixed Assets 4,10,000 2,80,000Debtors 2,25,000 1,35,000

Prepare the balance sheet of XY Ltd. after Amalgamation

(07)

(b) Explain the provisions under various sections of the Indian Companies Act which are relevant for Mergers & Acquisitions.

(07)

ORQ-2 (07)(b) What are the tactics used by a company as a defense against the threat of an

acquisition?

Q-3 (14)(a) What are the motives behind international acquisitions? What are the

difficulties faced by a company in cross-border acquisition?(b) Ram Ltd. is trying to buy Shyam Ltd. which is a small pharma firm that

develops products that are licensed to major pharmaceutical firms. The development costs are expected to generate a negative cash flow of Rs. 10 lakh during the first year of the forecast. Licensing fee is expected to generate positive cash flows of Rs. 5, 10, 15 and 20 lakh during 2-5 years respectively. Due to the emergence of competitive products, cash flows are expected to grow annually at the rate of 5% after fifth year forever. The discount rate for first five years is estimated to be 15% and then drop to 8% beyond fifth year. Calculate the value of the firm.

OR Q-3 (14)

(a) Write a short note on Asset Based Valuation and Earnings Based Valuation.(b) Based on the comparable companies approach, find out the value of H Ltd.,

which is a prospective target, from the following information:Particulars P Ltd. Q Ltd. R Ltd.Price / Sales 1.76 1.60 1.82Price / Book 1.92 1.70 2.05Price / Earnings 25 28 30

The current sales of H Ltd. are Rs. 162 crore, Book value of equity is Rs. 120 crore and earnings are Rs. 25 crore.

Q-4 (14)(a) What are the advantages of strategic alliances? Differentiate between strategic

alliances & JV.(b) Brief SEBI’s guidelines for buyback of shares.

ORQ-4 (14)(a) What are divestitures? Why do companies go for divestitures?(b) What are ‘ESOPs’? Explain in detail various types and uses of ESOPs.

Q-5 (14)(a) Write a note on three recent acquisitions in India.(b) Describe the provision relating to minimum offer price and payment of

consideration under SEBI Takeover code.OR

(a) State the essential characteristics of LBO candidate. Also explain MBO.(b) Explain different types of mergers with suitable example.

**************