Download GTU MBA 2016 Winter 4th Sem 2840201 Mergers And Acquisitions M And A Question Paper

Download GTU (Gujarat Technological University) MBA (Master of Business Administration) 2016 Winter 4th Sem 2840201 Mergers And Acquisitions M And A Previous Question Paper

Page 1 of 5


Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER 4 ? EXAMINATION ? WINTER 2016

Subject Code: 2840201 Date: 24/10/2016
Subject Name: Mergers & Acquisitions (M&A)
Time: 02:30 pm to 05:30 pm Total Marks: 70

Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1. (a) Multiple Choice Questions (1x6 = 6 Marks)
1. Which of the following are commonly cited reasons for M&As?
a. Synergy
b. Market power
c. Strategic realignment
d. All of the above
2. A merger is a combination of businesses in which______
a. two businesses combine to form a new business.
b. the participants are necessarily comparable in size, competitive position, profitability,
and market capitalization.
c. one of the two firms becomes a wholly owned subsidiary of the other firm.
d. none of the above.
3. An employee stock ownership plan (ESOP) is a trust that______
a. can be used as alternative to a divestiture.
b. can be used to purchase the shares of the owners of a privately held firm in a
leveraged buyout.
c. can be used as a means of placing a firm?s stock in ?friendly? hands to help dissuade
an unwanted takeover attempt.
d. all of the above.
4. Vertical mergers are those in which the participants are _______________
a. in the same industry.
b. in different industries
c. in different phases of the value chain.
d. none of the above.
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Page 1 of 5


Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER 4 ? EXAMINATION ? WINTER 2016

Subject Code: 2840201 Date: 24/10/2016
Subject Name: Mergers & Acquisitions (M&A)
Time: 02:30 pm to 05:30 pm Total Marks: 70

Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1. (a) Multiple Choice Questions (1x6 = 6 Marks)
1. Which of the following are commonly cited reasons for M&As?
a. Synergy
b. Market power
c. Strategic realignment
d. All of the above
2. A merger is a combination of businesses in which______
a. two businesses combine to form a new business.
b. the participants are necessarily comparable in size, competitive position, profitability,
and market capitalization.
c. one of the two firms becomes a wholly owned subsidiary of the other firm.
d. none of the above.
3. An employee stock ownership plan (ESOP) is a trust that______
a. can be used as alternative to a divestiture.
b. can be used to purchase the shares of the owners of a privately held firm in a
leveraged buyout.
c. can be used as a means of placing a firm?s stock in ?friendly? hands to help dissuade
an unwanted takeover attempt.
d. all of the above.
4. Vertical mergers are those in which the participants are _______________
a. in the same industry.
b. in different industries
c. in different phases of the value chain.
d. none of the above.
Page 2 of 5

5. All of the following are common motives for a merger or acquisition except for___
a. operating synergy
b. financial synergy
c. raising the cost of capital.
d. buying undervalued assets.
6. A strategy of anti-takeover under which the acquirer puts pressure on the management
of the target company by threatening to make an offer is known as:
a. Street sweep
b. Bear Hug
c. White knight
d. Brand power
Q. 1. (b). Define the Following. (1x4 = 4 Marks).
1. Divestiture
2. Consolidation
3. Carve-out
4. Book Value
Q. 1. (c). What are the ten main forms of corporate restructuring? 04
Q. 2. (a). Why do companies resort to reduction of capital despite the buy-back route being
available? Explain with the help to example. 07
(b). Discuss the provisions related to Mergers and Acquisition given in Income Tax Act,
1961. 07
OR
(b). How does buy-back of shares of by a company help in increasing the promoters stake
in the company? Explain with a numerical example. 07
Q. 3. (a). Explain the accounting treatment of assets, liabilities and reserves in the purchase
method contrasting the same with the pooling of interest method. 07
(b). What is due diligence? Why there is a need for due diligence in M&A? 07
OR
Q.3.(a). Explain the concept of ESOP in detail 07
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Page 1 of 5


Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER 4 ? EXAMINATION ? WINTER 2016

Subject Code: 2840201 Date: 24/10/2016
Subject Name: Mergers & Acquisitions (M&A)
Time: 02:30 pm to 05:30 pm Total Marks: 70

Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1. (a) Multiple Choice Questions (1x6 = 6 Marks)
1. Which of the following are commonly cited reasons for M&As?
a. Synergy
b. Market power
c. Strategic realignment
d. All of the above
2. A merger is a combination of businesses in which______
a. two businesses combine to form a new business.
b. the participants are necessarily comparable in size, competitive position, profitability,
and market capitalization.
c. one of the two firms becomes a wholly owned subsidiary of the other firm.
d. none of the above.
3. An employee stock ownership plan (ESOP) is a trust that______
a. can be used as alternative to a divestiture.
b. can be used to purchase the shares of the owners of a privately held firm in a
leveraged buyout.
c. can be used as a means of placing a firm?s stock in ?friendly? hands to help dissuade
an unwanted takeover attempt.
d. all of the above.
4. Vertical mergers are those in which the participants are _______________
a. in the same industry.
b. in different industries
c. in different phases of the value chain.
d. none of the above.
Page 2 of 5

5. All of the following are common motives for a merger or acquisition except for___
a. operating synergy
b. financial synergy
c. raising the cost of capital.
d. buying undervalued assets.
6. A strategy of anti-takeover under which the acquirer puts pressure on the management
of the target company by threatening to make an offer is known as:
a. Street sweep
b. Bear Hug
c. White knight
d. Brand power
Q. 1. (b). Define the Following. (1x4 = 4 Marks).
1. Divestiture
2. Consolidation
3. Carve-out
4. Book Value
Q. 1. (c). What are the ten main forms of corporate restructuring? 04
Q. 2. (a). Why do companies resort to reduction of capital despite the buy-back route being
available? Explain with the help to example. 07
(b). Discuss the provisions related to Mergers and Acquisition given in Income Tax Act,
1961. 07
OR
(b). How does buy-back of shares of by a company help in increasing the promoters stake
in the company? Explain with a numerical example. 07
Q. 3. (a). Explain the accounting treatment of assets, liabilities and reserves in the purchase
method contrasting the same with the pooling of interest method. 07
(b). What is due diligence? Why there is a need for due diligence in M&A? 07
OR
Q.3.(a). Explain the concept of ESOP in detail 07
Page 3 of 5

(b). Ajeet Company plans to acquire Jeet Company. The relevant financial details
of the two firms, prior to merger announcement, are given below: 07
Ajeet Company Jeet Company
Market Price Per Share Rs. 60 Rs. 25
No. of Shares 3,00,000 2,00,000
The merger is expected to bring gains which have a present value of Rs.
4 million. Ajeet Company offers one share in exchange for every two
shares of Jeet Company.
(a) What is the true cost of Ajeet Company for acquiring Jeet Company?
(b) What is the net present value of the merger to Ajeet Company?
(c) What is the net present value of the merger to Jeet Company?
Q.4.(a). Explain the concept of strategic alliance. Why do companies enter into strategic
alliances? What are the implications of strategic alliance? 07
(b). Sunny Ltd. is studying the possible acquisition of Rainyy Ltd. And the following
information is available :
Sunny Ltd. Rainy Ltd.
Profit after tax Rs. 300000 Rs.75000
Equity shares outstanding 50000 10000
P/E multiple 3 2
If the merger takes place by exchange of equity Shares based on market price, what is
the EPS of the new firm? 07
OR
Q.4.(a). Explain the role of major factors that influence Cross Border Mergers and
Acquisitions. 07
(b). Explain in detail various methods used to do the valuation of Business in an M&A
activities. 07

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Page 1 of 5


Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER 4 ? EXAMINATION ? WINTER 2016

Subject Code: 2840201 Date: 24/10/2016
Subject Name: Mergers & Acquisitions (M&A)
Time: 02:30 pm to 05:30 pm Total Marks: 70

Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1. (a) Multiple Choice Questions (1x6 = 6 Marks)
1. Which of the following are commonly cited reasons for M&As?
a. Synergy
b. Market power
c. Strategic realignment
d. All of the above
2. A merger is a combination of businesses in which______
a. two businesses combine to form a new business.
b. the participants are necessarily comparable in size, competitive position, profitability,
and market capitalization.
c. one of the two firms becomes a wholly owned subsidiary of the other firm.
d. none of the above.
3. An employee stock ownership plan (ESOP) is a trust that______
a. can be used as alternative to a divestiture.
b. can be used to purchase the shares of the owners of a privately held firm in a
leveraged buyout.
c. can be used as a means of placing a firm?s stock in ?friendly? hands to help dissuade
an unwanted takeover attempt.
d. all of the above.
4. Vertical mergers are those in which the participants are _______________
a. in the same industry.
b. in different industries
c. in different phases of the value chain.
d. none of the above.
Page 2 of 5

5. All of the following are common motives for a merger or acquisition except for___
a. operating synergy
b. financial synergy
c. raising the cost of capital.
d. buying undervalued assets.
6. A strategy of anti-takeover under which the acquirer puts pressure on the management
of the target company by threatening to make an offer is known as:
a. Street sweep
b. Bear Hug
c. White knight
d. Brand power
Q. 1. (b). Define the Following. (1x4 = 4 Marks).
1. Divestiture
2. Consolidation
3. Carve-out
4. Book Value
Q. 1. (c). What are the ten main forms of corporate restructuring? 04
Q. 2. (a). Why do companies resort to reduction of capital despite the buy-back route being
available? Explain with the help to example. 07
(b). Discuss the provisions related to Mergers and Acquisition given in Income Tax Act,
1961. 07
OR
(b). How does buy-back of shares of by a company help in increasing the promoters stake
in the company? Explain with a numerical example. 07
Q. 3. (a). Explain the accounting treatment of assets, liabilities and reserves in the purchase
method contrasting the same with the pooling of interest method. 07
(b). What is due diligence? Why there is a need for due diligence in M&A? 07
OR
Q.3.(a). Explain the concept of ESOP in detail 07
Page 3 of 5

(b). Ajeet Company plans to acquire Jeet Company. The relevant financial details
of the two firms, prior to merger announcement, are given below: 07
Ajeet Company Jeet Company
Market Price Per Share Rs. 60 Rs. 25
No. of Shares 3,00,000 2,00,000
The merger is expected to bring gains which have a present value of Rs.
4 million. Ajeet Company offers one share in exchange for every two
shares of Jeet Company.
(a) What is the true cost of Ajeet Company for acquiring Jeet Company?
(b) What is the net present value of the merger to Ajeet Company?
(c) What is the net present value of the merger to Jeet Company?
Q.4.(a). Explain the concept of strategic alliance. Why do companies enter into strategic
alliances? What are the implications of strategic alliance? 07
(b). Sunny Ltd. is studying the possible acquisition of Rainyy Ltd. And the following
information is available :
Sunny Ltd. Rainy Ltd.
Profit after tax Rs. 300000 Rs.75000
Equity shares outstanding 50000 10000
P/E multiple 3 2
If the merger takes place by exchange of equity Shares based on market price, what is
the EPS of the new firm? 07
OR
Q.4.(a). Explain the role of major factors that influence Cross Border Mergers and
Acquisitions. 07
(b). Explain in detail various methods used to do the valuation of Business in an M&A
activities. 07

Page 4 of 5

Q. 5. Case Study 14

Taking advantage of the Wall Street meltdown and global financial crunch, the cash-rich
IT an BPO firms were on a bargain-hunting spree on the deal street late 2008 and early
2009. The Indian IT and ITES companies witnessed M&A and PE investments worth
$3.8 billion in the year up to December 15,2008 surpassing $3.62 billion in 2007,
including the WIPRO's acquisition of CITI Technology Services, the India-based captive IT
unit of Citigroup Inc at $127 million.
Of the total M&A & PE deals worth $3.8 billion, as many as 72cross-border deals
added to nearly $2.69 billion ($2.51 billion in 2007), according to advisory firm Grant
Thornton. This included $2.27 billion of outbound acquisitions and $306 million in inbound
deals. However, even as the IT companies went on an acquisition overdrive, the PE deals
between January and December 15, 2008 slumped to $488 million ($744 million in 2007).
The acquisition spree is with valuable reason. A CFO of a large Indian IT services
company said that the valuations, which were earlier ruling at l.5-2 times sales, became
more realistic. "It came down to one time sales. Also, many customers were trying to hive
off their non-core business and picking-up such assets can bring committed revenue and
access to new customers", he said.
CITI' s sale of its captive BPO unit to Tata Consultancy Services in a $505- million deal
in October and HCL Technologies buy-out of UK consulting firm Axon for $658 million
earlier this month in 2008 were big-ticket acquisition. But this entire pale off when we
considered Tata Steel?s acquisition of Corns Steel few years ago. Market power was the
main reason Tata targeted at that time. In July 2008, BPO firm QUATRRO acquired
over 60 per cent stake in Babel Media (it invested in the company along with DE Shaw
group). BPO firm WNS acquired UK insurance major AVIVA' s BPO business for around
$228 million.
IT companies that have huge piles of cash are looking at leveraging it to get more business.
Actually meltdowns are new found opportunities for takeover tycoons all over the world.
Markets have revived in 2-3 years. So buyouts during troubled times actually do well in
value creation. Acquisitions were coming with sourcing agreements, which offered clear
revenue streams," says Mr Nishant Verma, Vice-President of advisory firm Tholons
Capital. For instance, WIPRO-CITI Technology Services deal came with Master Services
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Page 1 of 5


Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER 4 ? EXAMINATION ? WINTER 2016

Subject Code: 2840201 Date: 24/10/2016
Subject Name: Mergers & Acquisitions (M&A)
Time: 02:30 pm to 05:30 pm Total Marks: 70

Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1. (a) Multiple Choice Questions (1x6 = 6 Marks)
1. Which of the following are commonly cited reasons for M&As?
a. Synergy
b. Market power
c. Strategic realignment
d. All of the above
2. A merger is a combination of businesses in which______
a. two businesses combine to form a new business.
b. the participants are necessarily comparable in size, competitive position, profitability,
and market capitalization.
c. one of the two firms becomes a wholly owned subsidiary of the other firm.
d. none of the above.
3. An employee stock ownership plan (ESOP) is a trust that______
a. can be used as alternative to a divestiture.
b. can be used to purchase the shares of the owners of a privately held firm in a
leveraged buyout.
c. can be used as a means of placing a firm?s stock in ?friendly? hands to help dissuade
an unwanted takeover attempt.
d. all of the above.
4. Vertical mergers are those in which the participants are _______________
a. in the same industry.
b. in different industries
c. in different phases of the value chain.
d. none of the above.
Page 2 of 5

5. All of the following are common motives for a merger or acquisition except for___
a. operating synergy
b. financial synergy
c. raising the cost of capital.
d. buying undervalued assets.
6. A strategy of anti-takeover under which the acquirer puts pressure on the management
of the target company by threatening to make an offer is known as:
a. Street sweep
b. Bear Hug
c. White knight
d. Brand power
Q. 1. (b). Define the Following. (1x4 = 4 Marks).
1. Divestiture
2. Consolidation
3. Carve-out
4. Book Value
Q. 1. (c). What are the ten main forms of corporate restructuring? 04
Q. 2. (a). Why do companies resort to reduction of capital despite the buy-back route being
available? Explain with the help to example. 07
(b). Discuss the provisions related to Mergers and Acquisition given in Income Tax Act,
1961. 07
OR
(b). How does buy-back of shares of by a company help in increasing the promoters stake
in the company? Explain with a numerical example. 07
Q. 3. (a). Explain the accounting treatment of assets, liabilities and reserves in the purchase
method contrasting the same with the pooling of interest method. 07
(b). What is due diligence? Why there is a need for due diligence in M&A? 07
OR
Q.3.(a). Explain the concept of ESOP in detail 07
Page 3 of 5

(b). Ajeet Company plans to acquire Jeet Company. The relevant financial details
of the two firms, prior to merger announcement, are given below: 07
Ajeet Company Jeet Company
Market Price Per Share Rs. 60 Rs. 25
No. of Shares 3,00,000 2,00,000
The merger is expected to bring gains which have a present value of Rs.
4 million. Ajeet Company offers one share in exchange for every two
shares of Jeet Company.
(a) What is the true cost of Ajeet Company for acquiring Jeet Company?
(b) What is the net present value of the merger to Ajeet Company?
(c) What is the net present value of the merger to Jeet Company?
Q.4.(a). Explain the concept of strategic alliance. Why do companies enter into strategic
alliances? What are the implications of strategic alliance? 07
(b). Sunny Ltd. is studying the possible acquisition of Rainyy Ltd. And the following
information is available :
Sunny Ltd. Rainy Ltd.
Profit after tax Rs. 300000 Rs.75000
Equity shares outstanding 50000 10000
P/E multiple 3 2
If the merger takes place by exchange of equity Shares based on market price, what is
the EPS of the new firm? 07
OR
Q.4.(a). Explain the role of major factors that influence Cross Border Mergers and
Acquisitions. 07
(b). Explain in detail various methods used to do the valuation of Business in an M&A
activities. 07

Page 4 of 5

Q. 5. Case Study 14

Taking advantage of the Wall Street meltdown and global financial crunch, the cash-rich
IT an BPO firms were on a bargain-hunting spree on the deal street late 2008 and early
2009. The Indian IT and ITES companies witnessed M&A and PE investments worth
$3.8 billion in the year up to December 15,2008 surpassing $3.62 billion in 2007,
including the WIPRO's acquisition of CITI Technology Services, the India-based captive IT
unit of Citigroup Inc at $127 million.
Of the total M&A & PE deals worth $3.8 billion, as many as 72cross-border deals
added to nearly $2.69 billion ($2.51 billion in 2007), according to advisory firm Grant
Thornton. This included $2.27 billion of outbound acquisitions and $306 million in inbound
deals. However, even as the IT companies went on an acquisition overdrive, the PE deals
between January and December 15, 2008 slumped to $488 million ($744 million in 2007).
The acquisition spree is with valuable reason. A CFO of a large Indian IT services
company said that the valuations, which were earlier ruling at l.5-2 times sales, became
more realistic. "It came down to one time sales. Also, many customers were trying to hive
off their non-core business and picking-up such assets can bring committed revenue and
access to new customers", he said.
CITI' s sale of its captive BPO unit to Tata Consultancy Services in a $505- million deal
in October and HCL Technologies buy-out of UK consulting firm Axon for $658 million
earlier this month in 2008 were big-ticket acquisition. But this entire pale off when we
considered Tata Steel?s acquisition of Corns Steel few years ago. Market power was the
main reason Tata targeted at that time. In July 2008, BPO firm QUATRRO acquired
over 60 per cent stake in Babel Media (it invested in the company along with DE Shaw
group). BPO firm WNS acquired UK insurance major AVIVA' s BPO business for around
$228 million.
IT companies that have huge piles of cash are looking at leveraging it to get more business.
Actually meltdowns are new found opportunities for takeover tycoons all over the world.
Markets have revived in 2-3 years. So buyouts during troubled times actually do well in
value creation. Acquisitions were coming with sourcing agreements, which offered clear
revenue streams," says Mr Nishant Verma, Vice-President of advisory firm Tholons
Capital. For instance, WIPRO-CITI Technology Services deal came with Master Services
Page 5 of 5

Agreement under which the banking giant will source services worth at least half a billion
dollars from the Indian vendor.
Mr Harish HV, Partner (Corporate Advisory Services), Grant Thornton, pointed out
that the IT industry had been leveraging the sentiments in the global market as also
the valuations to their advantage," adding that the momentum is likely to sustain in
2009, as more global firms, under pressure, will look to sell captive units.
Answer the questions after carefully reading and understanding the case
presented above.
(a) Are troubled times better time for takeovers? Substantiate. 04
(b) Leveraging cash chest, Value chain addition and synergy are factors in takeovers.
Elucidate with examples. 05
(c) Could there be occasions of bad acquisitions? Why do they happen? What exit routes are
available? What protections are knitted through the deal? 05
OR
Q.5. The following information is provided related to the acquiring firm Mark Limited and the
target firm Mask Limited: 14
Particulars Mark Limited Mask Limited
Earnings after tax Rs. 2000 lakhs Rs. 400 lakhs
Number of shares outstanding 200 lakhs 100 lakhs
P/E ratio (times) 10 5
Required:
(i) What is the swap ratio based on current market prices?
(ii) What is the EPS of Mark Limited after acquisition?
(iii) What is the expected market price per share of Mark Limited after acquisition, assuming
P/E ratio if Mark Limited remains unchaged?
(iv) Determine the market value of the merged firm.
(v) Calculate gain/loss for share holders of the two independent companies after acquisition.
****************
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