Swap Ratio Cr

8/3/2019 Swap Ratio Cr

1/23

SWAP RATIO

Presented by- Shweta Tanwar

Supriya Adlakha

CORPORATE RESTRUCTURING


2/23

Meaning of SWAP RATIO

It is the ratio in which an acquiring companywill offer its own shares in exchange for thetarget company's shares during a merger or

acquisition. To calculate the swap ratio, companiesanalyze financial ratios such as book value,earnings per share, profits after tax anddividends paid, as well as other factors, such

as the reasons for the merger or acquisition.


3/23

For example

If a company offers a swap ratio of

1:1.5, it will provide one share ofits own company for every 1.5

shares of the company being

acquired.


4/23

Formula-

SWAP RATIO

= Value per share ofTarget

Company/ Value per share ofAcquirer Company


5/23

Practical Application

1. ICICI Bank buys Bank ofRajasthan in 2010

ICICI Bank It is Indias second largestbank with total assets of Rs 3634 billion atMarch 31, 2010 and profit after tax Rs40.25 billion for the year ended March 31,2010

Bank of Rajasthan At March, 2009,Bank of Rajasthan had total assets of Rs.172.24 billion, deposits of Rs. 151.87billion and advances of Rs. 77.81 billion.


6/23

It made a net profit of Rs. 1.18 billion in theyear ended March 31, 2009 and a net loss ofRs. 0.10 billion in the nine months endedDecember 31, 2009

ICICI Bank acquired Bank of Rajasthan

because-

ICICI Bank Ltd agreed to acquire smaller rivalBank of Rajasthan Ltd to strengthen itspresence in northern and western India

Deal would substantially enhance its branchnetwork and it would combine BoR branchfranchise with its strong capital base

Besides getting 468 branches, Indias largestprivate sector bank will also get control of 58branches of a regional rural bank sponsored

by BoR


7/23

In this case ICICI Bank is the Acquirer and

Bank of Rajasthan is the target company

Particulars ICICI Bank

(Acquirer)

Bank of Rajasthan

(Target Company)

No. of shares

outstanding

1114.73 161.35

Market price of the

shares

747.3 212.1

EPS 41.9 7.3

Book Value 460.2 64.8


8/23

Calculation

The Calculation can be based on

1.M

arket Price2. Earning per share

3. Book Value


9/23

We have to ascertain number of shares

to be issued to the shareholders of

Bank of Rajasthan (Target company) ineach case

Market Price = 161.35/1114.73

= 0.145The no. of shares to be issued = (161.35

X 0.145) = 23

EPS = 7.3/41.9

= 0.174

The no. of shares to be issued = (161.35

X 0.174) = 28


10/23

Book value = 64.8/460.2

= 0.139

The no. of shares to be issued = (161.35 X

0.139) = 22


11/23

Market volatility post

announcement of SWAP Ratio

Swap Ratio of 25:118 (25 shares of ICICI for118 shares of Bank of Rajasthan) i.e. 1 ICICI

Bank share for 4.72 Bank of Rajasthanshares

Shares of ICICI Bank closed at Rs 963.95,down 0.74%, while that of Bank of

Rajasthan slipped 0.03% to Rs 190.15 onThe Bombay Stock Exchange


12/23

The market gave its judgment on the dayof announcement when the shares ofICICI bank were down by over 7% andBoRs shares hit an upper circuit of 20%.

The shareholders of BOR are toreap benefits as their per share value hasbeen valued at Rs.188.42 as compared toRs. 80 on the end of17th May, the dayprevious to the day of announcement.


13/23

2. Tata Steel acquires Corus Group plc in

2007

Tata Steel, formerly known as TISCO (TataIron and Steel Company Limited), was theworld's 56th largest and India's 2nd largeststeel company with an annual crude steelcapacity of 3.8 million tonnes. Based inJamshedpur, India, it was part of the Tatagroup of companies.

Corus was formed from the merger

of Koninklijke Hoogovens N.V. with BritishSteel Plc on 6 October 1999. It had majorintegrated steel plants at Port Talbot, SouthWales; Scunthorpe, North Lincolnshire;Teesside, Cleveland (all in the U.K)and

Ijmuiden in the Netherlands.


14/23

It also had rolling mills in England. Groupturnover for the year to December 31, 2005was 10.142 billion. Profits were 580million

before tax and 451 million after tax.

REASONS FOR MERGER-

FOR CORUS:

Total Debt Of Corus Is 1.6 Bn Gbp

Corus needs supply of raw material at lowercost

Though Corus has revenue Of $18.06 Bn its

profit was just of $626 Mn Corus facilities Were Relatively Old With High

Cost Of Production

Employee Cost Is 15% While That Of Tata

Steel Is 9%


15/23

A diversified product mix will reduce riskswhile higher end products will add to bottom

line. Corus holds a number of patents and R&D

facility

Tata is known for efficient handling

for labor and it aims at reducing employeecost and improve productivity

It will move from 55th positon in world to 5thin production of steel Globally


16/23

In this case, Tata Steel is the acquirer and

Corus Group plc is the target company

Particulars Tata Steel(Acquirer)

Corus Group plc(Target company)

No. of shares

outstanding

159700000 967691493

Market price per

share

432.45 45941.3

EPS 72.71 1819.26

Book value 5262700000 1340000000


17/23

We have to ascertain number of sharesto be issued to the shareholders of

Corus Group plc (Target company) ineach case

Market price = 967691493/159700000

= 6.06The no. of shares to be issued =

(967691493 X 6.06) =5864210447.58

EPS = 1819.26/432.4= 4.21

The no. of shares to be issued =(967691493 X 4.21) = 4073981185.53


18/23

Book value = 1340000000/5262700000

= 0.25The no. of shares to be issued =(967691493 X 0.25) = 241922873.25


19/23

Market volatility post announcement of

SWAP Ratio

Tata Steel share prices fellupon announcement of the acquisitionand continued to slide during the next two

months. After a battering of two-and-a-halfmonths (in December), shares of TataSteel staged a partial recovery with a gainof over 5percent with some market

players speculating that the companymight withdraw its bid to acquire Anglo-Dutch steelmaker Corus.


20/23

Tata Steel shares had lost about 20per centever since the reports first poured early in

October that it was planning to acquire Corus,as it was felt that the costly takeover wouldhave an adverse impacting the company'sbalance sheet. The brokers said the dealmight have significant long-term synergies,

but market players were worried about theadverse impact in the short term. Tata Steel'sshare price closed 5.4 per cent higher atRs 459.25, after hitting an intra-day high of Rs461.45 at the Bombay Stock Exchange.However, the stock was still 14 per cent belowthe level it was trading at in the beginningof October. Interestingly, the CSN stock pricewent up when it announced its bid.


21/23

PRESENT SCENARIO

Post-Corus, Tata group revenue crosses US

$ 50 billion. It reported consolidatedrevenues of Rs 31,154 crore in quarter ending 30June, a 442% jump from theprevious year on January 2008.The Tatagroup, one of India's largest businesshouses consisting of around100 firms inseven sectors, crossed the $50 billion(Rs1.97 trillion) revenue mark in 2007,following the acquisition of Corus Group Plc.

The group reported $28.8 billion as therevenue for 2006-07. Tata Steel Ltd acquiredEuropes second largest steel producer Corus on 31 January for $13.65billion.


22/23

Corus started contributing to the groupsrevenue from April. Tata Steel doesnt break

out Corus revenue. It reported consolidatedrevenues of Rs31,154 crore in quarter ending 30 June, a 442% jump from theprevious year. Tata Steel reported Rs 4,197crore as total revenue for the June quarter. It

had Rs26,957 crore revenue from itssubsidiaries and bulk of that came fromCorus


23/23

Thank you

Swap Ratio Cr

Documents