Investment Valuation in India

Valuation is a critical part of the merger process. A deal that may be sound from a business standpoint may be unsound from a financial standpoint if the bidder firm pays too much. The purpose of a valuation analysis is to provide a disciplined procedure for arriving at a price. If the buyer offers too little, the target may resist and, since it is in play, seek to interest other bidders. If the price is too high, the premium may never be recovered from postmerger synergies. These general principles are illustrated by the following simple model. ANALYSIS Mergers increase value when the value of the combined firm is greater than the sum of the premerger values of the independent entities. NVI = V BT – ( V B - V T) where NVI = net value increase V B = value of bidder alone V T = value of target alone V BT = value of firms combined A simple example will illustrate. Company B (the bidder) has a current market value of Rs.40mn. Company T (the target) has a current market value of Rs.40mn. ...

What is meant by Takeovers & Substantial acquisition of shares? When an “acquirer” takes over the control of the “target company”, it is termed as takeover. When an acquirer acquires “substantial quantity of shares or voting rights” of the Target Company, it results into substantial acquisition of shares. The term “Substantial” which is used in this context has been clarified subsequently. What is a Target Company? A Target Company is a company whose shares are listed on any stock exchange and whose shares or voting rights are acquired/being acquired or whose control is taken over/being taken over by an acquirer. Who is an Acquirer? An acquirer means any individual/company/any other legal entity which intends to acquire or acquires substantial quantity of shares or voting rights of target company or acquires or agrees to acquire control over the target company. It includes persons acting in concert (PAC) with the acquirer. What is meant by the term “Persons Acting in Concert (PACs)...