History of merging and merged companies and scheme of merger.
History of Gujarat Propack Ltd. (i.e., Merging Company)
Gujarat Propack Ltd. (hereinafter referred to as GPL) was incorporated on 27th November, 1984 as a public limited company in Ahmedabad by J M Patel group in association with Gujarat industrial investment corporation ltd (GIIC). Later it become 93.79% subsidiary of CFL. The company is engaged in Plastics Films, Bi-Axially Oriented Poly Propylene (BOPP) sheets etc. The company has two plants which are located one in Halol and another in Karjan (both are in Gujarat state).
HISTORY OF COSMO FILMS LTD. (i.e. Merged Company)
Cosmo Film Ltd., (Hereinafter to as CFL) was incorporated on7tOctober, 1976 at New Delhi. The company was promoted by Ashok Jaipuria and is engaged the manufacture of BOPP film (which is extensively used in fixable packaging sector and electronic application). Extrusion Coating and Synthetic paper. Cosmo films accounts for a substantial capacity in the BOPP segment. In the year 1990, the increase in the cost of raw material, higher interest charges and steep levy in margin money on imports adversely affected the results. The over capacity in the flexible packaging sector also affected the demands as well as the margins of the company. However, during the year 2001-02 the company re-reported 45.53% rise in exports.
Effectiveness of merger and its impact on the shareholders of merging company – GPL
It has been observed from the table–6.8 that the merging company, GPL was loss making before merger. It’s net profit merging and RONW both showed negative figures. The company’s is very much benefited from the merger due to following reasons.
The per-merger average net profit of -3.49% improved substantially and reached to a positive figure of 4.97% after merger, representing increase by 242.41%.
Pre-merger average RONW also improved substantially from -19.21% to 18.07%, representing increase by 194.07%.
The reason for this as stated in the director’s report is restructuring of most its debt capital. Due to restructuring of debt capital the average interest cost of combined debts has been reduced from 10.6% p.a. (2001-02) to 4.4% p.a. (2002-03). In the table, it is noticed that the per-merger average leverage ratio has been declined from 3.49 to 1.7.1 representing reduction by 51.00%. And another reason is synergetic advantage of realigning the entire organization team for effectively managing operating costs. In fact the merger was planned for the purpose of cost reduction and man power rationalization.
The company is also benefited in terms of increased liquidity ratio, although it is marginal. The company’s pre-merger average liquidity ratio of 1.16 is increase to 1.54.
It is clear from the table that EPS of the company was negative before merger except in the second year before merger, that too a meager amount of Re.0.13. During post-merger period it substantially improved. In the year of merger itself it attained a positive figure of Rs.11.78 and thereafter declined. The pre-merger average negative EPS of Re.3.79 turned out to be positive Rs.4.42 after merger, representing 216.62% improvement.
Another benefit gained by the shareholders is in terms of dividend. The company did not paid dividend before merger. But after the merger the company continuously paid it. An average DPS after merger is Rs2.00.
BVPS also increased substantially after merger. An average BVPS before merger of Rs.20.13 increased to Rs.33.13, representing increase by 64.58%.
Effectiveness of merger and its impact on the shareholders of merged company - CFL
It is observed from the table, that the merged entity, CFL was healthy before merger. All the key indicators were positive. The net profit margin increased marginally only in the year of merger to 12.68% from 12.05%. After that, it continuously declined. Thus, the average pre-merger net profit margin of 8.28% declined to 4.98%, representing decline by 39.98%. However, the RONW has witnessed an increase during post-merger period. An average pre-merger RONW of 13.53% increased to 18.07%, representing increase by 33.56%.
It is observed from the table that the merged entity, CFL was profitable before merger. During pre-merger period, the EPS of the company continuously increased from Rs.3.20 (third year before merger) to Rs.20.64 (first year before merger). In the year of merger it further increased to Rs.23.55 and thereafter decline continuously. The average pre-merger EPS of Rs.12.01 declined to Rs.8.84, representing a decline by 26.39%.
In terms of dividend, it had increasing trend before merger. In the year of merger it further increased to Rs.4.50 and in the next year also it maintained the same amount. However, in the second year after merger it declined to Rs.3.50.
The average pre-merger P/E ratio increased from 5.54 to 15.82, representing an increase by 185.56%.
The BVPS showed a sharp decline in the year of merger. It declined from Rs.103.27 (the first year before merger) to Rs.54.49 (i.e., decline by 47.24%) and thereafter it slowly recovered. Thus, the average pre-merger BVPS of Rs.62.72 increased marginally to Rs.66.27, representing an increase by 5.66%.
The market price of the share showed a tremendous increase in the year of merger. The price increased from Rs.37.75 to Rs.109.05 (i.e., increase by 188.87%) and thereafter it declined to s.86.83 in the first year after merger, but still it is more than the price prevailing during pre-merger period. On the whole, the pre-merger average price of Rs.36.06 is increased to Rs.77.44, representing an increase by 114.75%.
Based on the above analysis, it is concluded that, in this merger case, both merging and merged companies are benefited from the merger, but the loss Making merging company is more benefited than the merged entity. Because negative net profit margin and RONW turned out to be positive after the merger. Leverage ratio declined and liquidity ratio increased. The shareholders of merging company are more benefited than those of merged company in terms of EPS, DPS, BVPS etc.
Merged company is also benefited from the merger. But due to continuous increase in the material cost cause the company to bring down the net profit margin and RONW after the merger. The overall sales and reserves and surplus increased after the merger.
History of Gujarat Propack Ltd. (i.e., Merging Company)
Gujarat Propack Ltd. (hereinafter referred to as GPL) was incorporated on 27th November, 1984 as a public limited company in Ahmedabad by J M Patel group in association with Gujarat industrial investment corporation ltd (GIIC). Later it become 93.79% subsidiary of CFL. The company is engaged in Plastics Films, Bi-Axially Oriented Poly Propylene (BOPP) sheets etc. The company has two plants which are located one in Halol and another in Karjan (both are in Gujarat state).
HISTORY OF COSMO FILMS LTD. (i.e. Merged Company)
Cosmo Film Ltd., (Hereinafter to as CFL) was incorporated on7tOctober, 1976 at New Delhi. The company was promoted by Ashok Jaipuria and is engaged the manufacture of BOPP film (which is extensively used in fixable packaging sector and electronic application). Extrusion Coating and Synthetic paper. Cosmo films accounts for a substantial capacity in the BOPP segment. In the year 1990, the increase in the cost of raw material, higher interest charges and steep levy in margin money on imports adversely affected the results. The over capacity in the flexible packaging sector also affected the demands as well as the margins of the company. However, during the year 2001-02 the company re-reported 45.53% rise in exports.
Effectiveness of merger and its impact on the shareholders of merging company – GPL
It has been observed from the table–6.8 that the merging company, GPL was loss making before merger. It’s net profit merging and RONW both showed negative figures. The company’s is very much benefited from the merger due to following reasons.
The per-merger average net profit of -3.49% improved substantially and reached to a positive figure of 4.97% after merger, representing increase by 242.41%.
Pre-merger average RONW also improved substantially from -19.21% to 18.07%, representing increase by 194.07%.
The reason for this as stated in the director’s report is restructuring of most its debt capital. Due to restructuring of debt capital the average interest cost of combined debts has been reduced from 10.6% p.a. (2001-02) to 4.4% p.a. (2002-03). In the table, it is noticed that the per-merger average leverage ratio has been declined from 3.49 to 1.7.1 representing reduction by 51.00%. And another reason is synergetic advantage of realigning the entire organization team for effectively managing operating costs. In fact the merger was planned for the purpose of cost reduction and man power rationalization.
The company is also benefited in terms of increased liquidity ratio, although it is marginal. The company’s pre-merger average liquidity ratio of 1.16 is increase to 1.54.
It is clear from the table that EPS of the company was negative before merger except in the second year before merger, that too a meager amount of Re.0.13. During post-merger period it substantially improved. In the year of merger itself it attained a positive figure of Rs.11.78 and thereafter declined. The pre-merger average negative EPS of Re.3.79 turned out to be positive Rs.4.42 after merger, representing 216.62% improvement.
Another benefit gained by the shareholders is in terms of dividend. The company did not paid dividend before merger. But after the merger the company continuously paid it. An average DPS after merger is Rs2.00.
BVPS also increased substantially after merger. An average BVPS before merger of Rs.20.13 increased to Rs.33.13, representing increase by 64.58%.
Effectiveness of merger and its impact on the shareholders of merged company - CFL
It is observed from the table, that the merged entity, CFL was healthy before merger. All the key indicators were positive. The net profit margin increased marginally only in the year of merger to 12.68% from 12.05%. After that, it continuously declined. Thus, the average pre-merger net profit margin of 8.28% declined to 4.98%, representing decline by 39.98%. However, the RONW has witnessed an increase during post-merger period. An average pre-merger RONW of 13.53% increased to 18.07%, representing increase by 33.56%.
It is observed from the table that the merged entity, CFL was profitable before merger. During pre-merger period, the EPS of the company continuously increased from Rs.3.20 (third year before merger) to Rs.20.64 (first year before merger). In the year of merger it further increased to Rs.23.55 and thereafter decline continuously. The average pre-merger EPS of Rs.12.01 declined to Rs.8.84, representing a decline by 26.39%.
In terms of dividend, it had increasing trend before merger. In the year of merger it further increased to Rs.4.50 and in the next year also it maintained the same amount. However, in the second year after merger it declined to Rs.3.50.
The average pre-merger P/E ratio increased from 5.54 to 15.82, representing an increase by 185.56%.
The BVPS showed a sharp decline in the year of merger. It declined from Rs.103.27 (the first year before merger) to Rs.54.49 (i.e., decline by 47.24%) and thereafter it slowly recovered. Thus, the average pre-merger BVPS of Rs.62.72 increased marginally to Rs.66.27, representing an increase by 5.66%.
The market price of the share showed a tremendous increase in the year of merger. The price increased from Rs.37.75 to Rs.109.05 (i.e., increase by 188.87%) and thereafter it declined to s.86.83 in the first year after merger, but still it is more than the price prevailing during pre-merger period. On the whole, the pre-merger average price of Rs.36.06 is increased to Rs.77.44, representing an increase by 114.75%.
Based on the above analysis, it is concluded that, in this merger case, both merging and merged companies are benefited from the merger, but the loss Making merging company is more benefited than the merged entity. Because negative net profit margin and RONW turned out to be positive after the merger. Leverage ratio declined and liquidity ratio increased. The shareholders of merging company are more benefited than those of merged company in terms of EPS, DPS, BVPS etc.
Merged company is also benefited from the merger. But due to continuous increase in the material cost cause the company to bring down the net profit margin and RONW after the merger. The overall sales and reserves and surplus increased after the merger.
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