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. ...

This is for all CAs in Practice or those who want to obtain a Certificate of practice. We all know what a Practicing CA does. But most of who are not in practice would know that there are a lot of restrictions on a practicing CA. The olst important of them is that a Practicing CA is not allowed to enter into any other business without the prior approval of the CA Institute/council. However, This is not the case any more. Although the council still maintains that a member holding Certificate of Practice (CoP) has to take prior approval, there has been major relaxations. The Chartered Accountants Act states that ;- A member of the Institute shall be deemed “to be in practice” when individually or in partnership with Chartered Accountants in practice, he, in consideration of remuneration received or to be received- (i) engages himself in the practice of accountancy; or (ii) offers to perform or performs service involving the auditing or verification of financial transactions, books, acco...

It was an unusual request for healthcare giant Dr Reddy's Laboratories (DRL). In 2006, Catherine Dulak, while relocating to India from the US with her husband who was to join DRL, insisted on bringing her seven pet cats along. The pharmaceutical company got the feline beauties shipped pronto in customised cages made on the basis of the specifications set by airlines and government agencies. From feline imports to gastronomic solutions to worklife balance, India Inc is ready to offer the moon to prepare the ground for a smooth blend of Indian operations with the acquired outfits. While non-Indian Infosys workers freshly recruited and posted in India get a chef specially flown in to cook food according to their taste buds, dal and curry are making their way into the office canteens of a Chinese company acquired by Mahindras. Welcome to the world of mergers and acquisitions and cultural integration. As India Inc's appetite for companies on foreign shores grows, it is fast realisin...

THEORIES of MERGERS The theories of mergers can be summarized into three major explanations. The first category is synergy or efficiency, in which total value from the combination is greater than the sum of the values of the component firms operating independently. Gains to Target Positive Gains to Acquirer Positive Total value Positive Hubris (the second category) is the result of the winner’s curse, causing bidders to overpay; it postulates that value is unchanged. Of course, in a synergistic merger, it would be possible for the bidder to overpay as well. Gains to Target Positive Gains to Acquirer Negative Total value NIL The third class of mergers comprises those in which total value is decreased as a result of mistakes or managers who put their own preferences above the well-being of the firm, the agency problem. Gains to Target Positive Gains to Acquirer Negative Total value Negative So as we see, gains to targets are always positive. ...

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)...