CORPORATE RESTRUCTURING – VALUATION OF SHARES, BUSINESS AND BRANDS

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....employed, the fixed assets of all the amalgamating companies should preferably be valued on a going concern basis. An asset based valuation can be further separated into four approaches: (a) Book Value - The tangible book value of a company is obtained from the balance sheet by taking the adjusted historical cost of the company's assets and subtracting the liabilities, intangible assets (goodwill) are excluded in the calculation. Using book value does not provide a true indication of a company's value, nor does it take into account the cash flow that can be generated by the company's assets. (b) Replacement Cost - Replacement Cost reflects the expenditures required to replicate the operations of the company. Estimating replacement cost ....

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....he use of Price earning (P/E) ratio instead of the rate of return. The P/E ratio of a listed company can be calculated as: P/E = P ______ EPS Where P is the current price of the shares The Share price can thus be determined as: P = EPS x P/E ratio 4. Merger negotiations: Significance of P/E ratio and EPS analysis - In practice, investors attach a lot of importance to the earnings per share (EPS) and the price - earnings (P/E) ratio. The product of EPS and P/E ratio is the market price per share. Exchange Ratio - The current market value of the acquiring and the acquired firms may be taken as the basis for exchange of shares. SER = Pb ______ Pa SER = Share Exchange Ratio Pb = Share price of the acquired firm (seller)....

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....business divestment 6. Subtract debt and other expenses, such as tax on gains from disposals and divestment, and acquisition costs, to give a value for the equity of the target. 7. Compare the estimated equity value for the target with its pre - acquisition stand - alone value to determine the added value from the acquisition. Decide how much of this added value should be given away to target shareholders as control premium. Target cash flows are generally forecast for the next five to ten years. Whatever the forecast horizon, the terminal value of the target at the end of that period based on free cash flows thereafter also needs to be forecast. The level perpetual cash flows are then capitalized at the cost of capital to yield the ter....

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....PR = Dividend ________ Earnings C. Price Earnings Ratio (PER) - Price earing ratios of both the offeror and offeree companies be compared to judge relative growth prospects. PER = Price ________ Earnings D. Debt Equity Ratio (DER) - Company with low gearing offers positive factor to investors for security and stability rather growth potential with a geared company having capacity to expand equity base. DER = Debt _______ Equity E. Net Assets Value (NAV) - It is compared of the two companies as the company with lower NAV has greater chances of being pushed into liquidation. NAV = Net assets ( Total assets - Liability & Preferred claims _________________ No. of Shares 9. Fair Value of Shares - The fair value of....