Group : ____ I

Part – I Brief history of the merging and merged companies and scheme of
merger
History of___________. (i.e. Merging Company)

History of____________ . (i.e. Merged Company)

Scheme of merger

A brief summary of scheme of merger has been presented as follows.

Effective Date of Merger 1st April 2001

Year of Merger 2001-02
Industry Acquiring company : Chemicals
Acquired company : Chemicals & Pesticides
Type of Merger Horizontal with concentric merger (Product
Extension)
Business Group Alchemie group
Exchange Ratio 1:4
1 equity share of Rs.10 fully paid are issued by AIL
for every 4 shares of Rs.10 held in AOL.
No. of shares issued 5,12,525 Equity shares of Rs.10

Part – II Benefits of merger and its impact on the shareholders of merging

company - AOL

Table showing Pre and Post-merger Key Indicators of ____

(Actual Value)

Key Indicators Y-3 Y-2 Y-1 Y0 Y1 Y2 Y3

N P Margin (in %) 6.09 1.22 -3.27 8.45 6.43 7.66 6.33
RONW (in %) 19.25 2.76 -8.80 22.61 20.48 21.96 20.57
Liquidity Ratio 1.14 1.56 1.37 2.49 2.97 3.66 2.47
Leverage Ratio 0.62 0.95 0.94 0.98 1.06 1.18 1.09
 Face value (in Rs.) 10 10 10 10 10 10 10
EPS (in Rs.) 6.03 0.98 -2.65 5.51 6.09 7.37 3.04
DPS (in Rs.) 1.20 0.50 0.00 0.50 1.63 1.88 2.53
P/E Ratio 2.06 15.03 -3.73 1.60 2.32 5.20 19.12
BVPS (in Rs.) 31.44 45.89 29.80 25.50 29.78 35.50 14.01
Share Price (in Rs.) 12.45 14.73 9.88 8.84 14.10 38.36 58.13

Table-5.6

Table showing Pre and Post-merger Key Indicators of ____

(Average Value)

Key indicators Pre-merger Post-merger % change

N P margin (in %) 1.35 6.81 404.44

RONW (in %) 4.40 21.00 377.27
Liquidity Ratio 1.36 3.03 122.79
Leverage Ratio 0.84 1.11 32.14
EPS (in Rs.) 1.45 5.50 279.31
DPS (in Rs.) 0.57 2.01 252.63
P/E Ratio 4.45 8.88 99.55
BVPS (in Rs.) 25.76 26.43 2.60
Share Price (in Rs.) 12.35 36.86 198.46

It is observed from the table-5.5 and 5.6 that the company was profitable
before merger except the year Y-1 (i.e. 2000-01). In the year 2000-01, the company
incurred losses on account of increased cost of manufacturing for some of its products
and increased overheads on account of development of new products introduced
during the year. However, after merger the company’s profitable position improved.
The average pre-merger net profit margin increased from 1.35% to 6.81%, which
represents more than 4 times and pre-merger average RONW has increased from
4.40% to 21.00%, representing increase by 377.27%.

The pre-merger liquidity ratio also improved from 1.36 to 3.03, which
represents increased by 122.79%.
 It is also observed from the table that post-merger operations are financed
largely by external borrowings. The pre-merger leverage ratio increased from 0.84 to
1.11, representing 32.14% increase.

It is observed from the table that the shareholder of merging entity, AOL were
not satisfied with the result during pre-merger period. Because in the last year before
the merger EPS was very less. In the year Y-1 it was Rs.-2.65 and in the year, Y-2 Re.
0.98. The average pre-merger EPS was just Rs.1.45, which substantially increased to
an effective EPS of Rs.5.50 during post-merger, representing increase by 279.31%

Since the company suffered losses in the first year before merger, shareholders
could not get any dividend. Even before it, the company had paid less rate of dividend.
The average DPS during pre-merger period was just Rs.0.57. However, during post-
merger period, it saw a substantial increase reaching to Rs.2.01, representing increase
by 252.63%.

The average pre-merger P/E ratio increased from 4.45 to 8.88, representing an
increase by 99.55%. It indicates that the extent of safety investing in the shares of
such company is increased.

However, the average BVPS increased marginally. It increased from Rs.25.76 to

Rs.26.43 (i.e. increased by just 2.60%).

It is also clear from the table that the reactions of the market are positive. The
effective average market share price increased substantially from Rs.12.35 to Rs.36.86
during post-merger period (i.e. increase by 198.46%). Only in the year of merger, the
share price saw a small correction.

Part - III Benefits of merger and its impact on the shareholders of merged
company - _____

It is observed from the table-5.7 and 5.8 that the company attained an
increased net profit margin during the post-merger period. It earned an average net
profit margin of just 4.68% during pre-merger period which jumped to 6.81% during
post-merger period, representing increase by 16.81%. RONW of the company also saw
an improvement during post-merger period. An average RONW during pre-merger
period was just 14.41%. After the merger, it increased to 21.00%, (i.e. 45.73%
increase).

However, there is a little negative impact on the liquidity and leverage ratios.

Liquidity ratio marginally decreased from 3.13 to 3.03 (i.e. -3.19% decrease) and

liquidity ratio increased from 1.03 to 1.11 (i.e. 7.77% increase).

A substantial increase is seen in the sales after merger. The pre-merger average

sales of Rs.265.73 crores, increased to Rs.539.24 (i.e. 102.93% increases). It indicates

that the company has been successful in maximum utilization of the plant.

It is also noticed that the company has witnessed healthy growth in the post-

merger reserves and surplus position. The average pre-merger reserves and surplus

increased from Rs.88.02 crores to Rs.154.55 crores (75.59% increase).

Table-5.7

Table showing Pre and Post-merger Key Indicators of ____

(Actual Value)

Key Indicators Y-3 Y-2 Y-1 Y0 Y1 Y2 Y3

N P Margin
8.50 4.32 4.68 8.45 6.43 7.66 6.33
(in %)
RONW (in %) 18.68 11.27 13.29 22.61 20.48 21.96 20.57
Liquidity Ratio 2.97 3.44 2.97 2.49 2.97 3.66 2.47
Leverage Ratio 0.93 0.98 1.17 0.98 1.06 1.18 1.09
Sales (in crores) 217.39 267.44 312.35 331.30 460.52 493.82 663.39
R & S (in crores) 79.78 88.71 95.56 112.63 133.34 160.91 169.39
Face value ((in Rs.) 10 10 10 10 10 10 10
EPS (in Rs.) 10.33 16.36 13.70 22.04 24.36 29.47 12.16
DPS (in Rs.) 2.70 3.50 3.60 2.00 6.50 7.50 10.10
P/E Ratio 2.67 2.56 2.80 1.60 2.31 5.21 19.12
BVPS (in Rs.) 72.48 77.27 83.43 101.98 119.13 141.98 56.03
 Share Price (in Rs.) 27.58 41.88 38.35 35.35 56.38 153.45 232.50

Table – 5.8

Table showing Pre and Post-merger Key Indicators of AIL

(Average Value)

Key indicators Pre-merger Post-merger % change

N P Margin (in %) 5.83 6.81 16.81

RONW (in %) 14.41 21.00 45.73

Liquidity Ratio 3.13 3.03 -3.19

Leverage Ratio 1.03 1.11 7.77

Sales (in crores) 265.73 539.24 102.93

R & S (in crores) 88.02 154.55 75.59

EPS (in Rs.) 13.46 22.00 63.45

DPS (in Rs.) 3.27 8.03 145.57

P/E Ratio 2.68 8.88 231.34

BVPS (in Rs.) 54.10 105.71 95.40

Share Price (in Rs.) 35.94 147.44 310.24

From the above analysis, it is concluded that the merged entity (i.e. AIL) also
benefited from the merger. However, the extent of benefit reaped by the merged entity
is less than that of merging company (i.e. AOL). The merging entity is relatively much
benefited after merger. Because, merging company (i.e. AOL) was incurring huge
material cost and manufacturing cost during pre-merger period. The average material
cost was as high as 74.36% as compared to 51.30% of AIL. Due to this reason, the
company’s net profit margin was effected it was as low as 1.35% compared to 5.83% of
AIL.

It is true that EPS of the company was fairly good and consistent during pre-
merger period. However, during post-merger period, it still increased and maintained
consistency. The average EPS during pre-merger period was Rs.13.46 and it increased
to Rs.22.00, representing increase by 63.45%, which is relatively less when compared
to that of AOL (which is 279.31%).

During pre-merger period, DPS fell from Rs.3.60 (first year before merger) to
Rs.2.00 in the year of merger. Whereas it improved significantly in the subsequent
years. The average pre-merger DPS of Rs.3.27 increased to Rs.8.03 (i.e. 145.57%
increases). P/E ratio of the company also increased substantially from 2.68 to 8.88,
representing an increase by 231.34%.

It is also noticed that the net value of the assets available to the shareholders

(BVPS) increased substantially during post-merger period. The average pre-merger

BVPS of Rs.54.10 increased to Rs.105.71 during post-merger period, representing and

increase by 95.40%.

During pre-merger period, the average market price was as low as Rs.35.94. It

increased sharply and traded at an average value of Rs.147.44, nearly more than four

times high. It indicates that the market has positive reaction to the merger.

Part - IV Conclusion