Data Analysis & Interpretation

Brightwayz is planning to merge with Speaksmart

So to find out whether doing merger is beneficial to brightwayz or not. for that I did following financial analysis.

Particular Brightwayz Earning per share 20 Price earning ratio 15 Market price 300 Book value per share 37.5 Dividend 16 Growth 5% Required rate of written 14% No. of shares 100

Speaksmart 12 10 120 24 8.4 4% 12% 80

This above data is provided by the company and from this data I have calculated following ratios

Exchange ratio on the basis of EPS = EPS of SpeakSmart = -----------------------------------EPS of brightwayz = 12 ------- = 0.6 20

Exchange ratio on the basis of book value Book value of SpeakSmart = -----------------------------------Book valure of brightwayz = 24 ------- = 0.64 37.5

Exchange ratio on the basis of market price Market price of SpeakSmart = -----------------------------------Market price of brightwayz = 120 ------- = 0.4 300

As per growth constant growth dividend discount model i.e (DDM) Intrinsic value = D1/ Re-g 16(1.05) Intrinsic value of brightwayz = ---------------------- =186.67 0.14 0.05

8.4 ( 1.04) Intrinsic value of SpeakSmart = ---------------------- =109.20 0.12 0.04

Exchange ratio based on intrinsic value Intrinsic value of SpeakSmart = -----------------------------------Intrinsic value of brightwayz = 109.20 ------186.67 = 0.58

Weighted exchange ratio = [ 0.4x0.6] + [0.1x0.64] +[0.3x0.4]+[0.2x0.58] = 0.54

Impact of merger on EPs assuming No. Firm brightwayz = EPS before merger = 20

PAT brightwayz + PAT SpeakSmart EPS after merger = --------------------------------------------------NA + rMB

(100x20) + ( 80x12) = -------------------------------100 + 0.54x80

= 20.67

Therefore EPS for brightwayz Shareholder is expected to grow up by 0.67

Firm SpeakSmart EPS before merger = 12 Equivalent EPS after merger = r x EPSaB = 0.54 x 20.67 = 11.14 So az valuation of merger the EPS of SpeakSmart is expected to fell by 0.86

NOTE : The impact of merger on firm SpeakSmart EPS can also be done in this manner

EPS of SpeakSmart Equivalent Pre merger EPS = -----------------------------r

12 =------------------0.54

= 22.22

Post merger EPS = EPS of after merger SpeakSmart = 20.67 The directional impact of merger on EPS should be obvious by comparing r i.e 0.54 with the exchange ratio that should have been fixed on EPS. i.e EPS SpeakSmart ----------------------------- = 0.6 EPS brightwayz

Since r =0.54 is lower , So brightwayz gain earning wise. The decision of going to merger with SpeakSmart is beneficial for brightwayz.

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