Company A Company B
J(50%), SS(1%), ZZ(49%) -100% J(20%), SS(60%), SD(20%)-100%
J(50%), SS(1%), Company B-49% J(20%),SS(60%), SD(20%)
Company B wanted to purchase Shares (49%) share of Company A.
- Any Independent Valuer can be appointed by Company A who will assess Share value of Z for sale and it can be calculated by any of the following method:
1.comparing valuation ratios,
2.Discounted Cash Flow analysis (DCF),
3.Internal Rate of Return (IRR),
4.Net Asset Value (NAV) Method,
5.Earning Capacity Method and many others.
The most common method and easiest to implement is to compare valuation ratios for the private company versus ratios of a comparable public company.
- Yes Company B can purchase share of ZZ (49%) and with this Company A will be Associate Company of Company B as it is holding only 49% of shares .
Implication on Company A : the shareholders are changed –The Shareholders of Company A after Sale of 49% share will be J(50%), SS(1%), Company B-49% and it is only acquiring of shares and the Company has not loosen its identity. Its a separate company running in the eyes of Law.
Company B Shareholding remain unchanged: J (20%),SS(60%), SD(20%)- Shareholders remain same, so no change in identity of Company.
- The purchase of Companies Shares leads to merger of Company A with Company B only when Company A looses its identity and absorbed in the business of Company B. The decision of Company A will be taken by both the Shareholders of Company A as share holders J & SS are having 51% of Shares and Company B is having 49 % of Shares. If Company B had more than 50% of shares than decision of Company A would have been taken by Company B.
- The Profit of the Company will be divided between Companies Shareholding i.e. Company A having (51 %) and Company B(49%) so profit will be accordingly as per Share exchange ratio as decided in the merger scheme.
- After considering all the points the selling of Shares by Company A Shareholder ZZ (49%) benefitted to Company B as a whole as Company B itself become shareholder of A.
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over 3 years ago