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Q.1 Explain the differences between a flip - in and flip over poison pill?

Ans. O

A provision in a poison pill that gives shareholders the right to buy the company¶s shares (or
the shares of the surviving company after a merger) at half price. Unlike a Flip-in, a flip-over
right does not become effective simply because an interested shareholder buys some stock.
Usually it becomeseffective wh en (i) there is an interested shareholder and (ii) the company
engages in certain transactionswith the interested shareholder or an affiliate, such as a
merger or a sale of all or a large part of itsassets. Historically, the flip -over poison pill was
devised several years before the more powerful flip -in.At that time the essential
discrimination against the interested shareholder that the flip -in entails waswidely considered
illegal. Now the two are generally combined, although under most circumstances
the flip-in provision of the pill dominates any potential bidder¶s attention.

O

 


 
 
Shareholders are issued rights to acquire stock in the target at a significant discount which is
usually50%.

O


The most important characteristic of the most effective rights plan (position pill) in use today.
It givesshareholders the right to buy the company¶s shares at half price when someone
becomes an µinterestedshareholder¶, that is, crosses some stock ownership threshold such
as 15% or 20%. The i nterestedshareholder¶s rights are void. Other shareholders can
(typically) use each of their rights to buy anumber of shares equal to two times the exercise
price (set in advance), divided by the currentmarket price of the target company¶s stock.
Usually, from the standpoint of a bidder, the flip -in right isa complete show stopper unless
the bidder can convince a court that it should intervene. In the textwe have tried to describe
when courts intervene against poison pills under Delaware law.

O






The most popular type of poison pill anti -takeover defense. Shareholders of the target firm
are issuedrights to purchase common stock at an exercise price high above the current
market price. If amerger occurs, the rights flip over and allow shareholders to purchase the
acquiring firm¶s commonstock at a substantial discount.
 [ompute the net wealth and wealth tax liability of Golden Jewellers ltd. as on 31 -3-11.
The company is engaged in the jewellery business export and domestic sales


Factory buildings 
Bank Balance 
Unaccounted cash balance 
Silver ware 
Gold ornaments 
Motor cars 

The company has taken a loan of Rs. 600000.00 for factory premise

Ans[omputation of Wealth Tax of Golden Jewellers ltd as on 31.3.11

Unaccounted [ash Balance Rs.25500

Motor cars Rs.150000

------------------

Total Rs.1525500

Less: Rs.1500000

-------------------

Net Wealth Taxable Rs.25500

Wealth Tax (1%) Rs.255 (1% of Rs.25500)

Note: Silver ware & Gold Ornament is not considered as these are stock in trade.

Only unaccounted cash balance consider for the wealth tax in case of the company.
Q.3 Fill in the blanks below, and discuss your results. [10Marks]

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([ompany W is compared with companies TA, TB, T[)

Ratio [ompany TA [ompany TB [ompany T[ Average

Enterprise 2 2.5 1
Market value /
revenues
Enterprise 20 10 5
Market value /
EBITDA
Enterprise 30 20 25
Market value /
Free cash flow





  

 

 

 

Actual recent data for Average Ratios Indicated Enterprise Market
company W Value
Revenues= $200
EBITDA = $10
Free cash flow = $5
Average =




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([ompany W is compared with companies TA, TB, T[)

Ratio [ompany TA [ompany TB [ompany T[ Average

Enterprise 2 2.5 1 1.833
Market value /
revenues
Enterprise 20 10 5 11.67
Market value /
EBITDA
Enterprise 30 20 25 25
Market value /
Free cash flow


Actual recent data for Average Ratios Indicated Enterprise Market
company W Value
Revenues = $200 1.83 $367
EBITDA = $10 11.67 $117
Free cash flow = $5 25 $125

Average = $609