01 December 2012
As i have put this query before but dint get the satisfactory answer. Pls anyone tell the correct answer for this query. Its very urgent for me. i will be thankful to you.
The query is- There are three companies A, B & C. The scheme is A & B are merging into C.
A= 100% subsidiary Of B it means B is 100% holding co. of A B= 100% subsidiary of D C= a separate co. 100% subsidiary of D
now the q.is = For swap ratio and valuation of shares whether consolidated b/S of A & B shall be considered or individual data of A & B should be considered. Is there any roll of company D in valuation. pls suggest what to do??? Thanks
Read more at: https://www.caclubindia.com/experts/modify_message.asp?entry_id=567425
02 August 2025
Great question! Here’s how the valuation and swap ratio typically work in a multi-company merger like this:
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### Scenario Recap:
* Company **B** holds 100% shares in **A** (A is B’s subsidiary). * Company **D** holds 100% shares in **B** and **C**. * Companies **A** and **B** are merging into **C**. * You want to know if swap ratio and valuation should be based on consolidated or individual financials, and what role D plays.
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### Key points:
#### 1. **Valuation of Shares for Swap Ratio**
* **Use individual standalone financials of A and B separately**, **NOT consolidated financials** of A & B combined.
Why? Because the swap ratio determines how shares of A and B will be exchanged for shares in C on a one-to-one basis (or some ratio). Each company’s value needs to be assessed independently to calculate the proportionate swap ratio.
* **Consolidated financials** (combining A & B) are generally **not used** in swap ratio calculation because A is subsidiary of B, and consolidation would lead to double counting.
#### 2. **Role of Holding Company D**
* For swap ratio of **A and B into C**, **D’s financials or holding pattern generally do not impact valuation directly**. * The focus is on **fair valuation of A and B individually relative to C** to determine an equitable swap ratio. * D’s role is more on the **ownership and control side**, not the share valuation or swap ratio calculation unless D is also a party to the scheme.
#### 3. **Valuation Methodology**
* Valuation of each company (A, B, and C) may use:
* Net Asset Value (NAV), * Discounted Cash Flow (DCF), * Market Price (if listed), * Profit Earning Capacity, or * Any other recognized valuation technique.
* Once values are determined, swap ratio is calculated as:
$$ \text{Swap ratio for A} = \frac{\text{Value of A}}{\text{Value of C per share}} $$
$$ \text{Swap ratio for B} = \frac{\text{Value of B}}{\text{Value of C per share}} $$
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### Summary:
| Question | Answer | | ------------------------------- | ----------------------------------------------------------------- | | Use consolidated or individual? | Use individual standalone financials of A & B, not consolidated | | Role of holding company D? | No direct role in valuation or swap ratio, only ownership context | | Swap ratio basis | Ratio of fair value per share of A and B to C |
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If you want, I can help you with a sample swap ratio calculation format or more detailed steps on valuation methods! Would that help?
CAclubindia
