Case 020M&A and corporate developmentCore

A home care company buys a personal care brand with cheap debt. The deal lifts EPS 6.6%. Does it create value?

Bank of AmericaLondon · 2026J.P. MorganNew York · 2025

The situation

Sugandha Home Care earns Rs 500 crore with 50 crore shares, EPS Rs 10.00. It agrees to buy Sindoori Personal Care, which earns Rs 150 crore, for Rs 2,600 crore, funded entirely with new debt at 6%. Tax is 25%.

A careful DCF values Sindoori at Rs 2,000 crore on its own. The deal team values the synergies at Rs 400 crore in present value, net of integration cost.

Your task

Is the deal accretive to EPS, does it create value for Sugandha's shareholders, and why might the two answers differ?

Quick check

The deal is 6.6% accretive. What does that tell you about value creation?

Worked solution

Try it on paper, then open one step at a time.

30-second answerThe answer to give first

The deal is 6.6% accretive, Rs 10.00 to Rs 10.66, yet it destroys about Rs 200 crore of value. EPS rises because Sindoori earns 5.8% on its price while debt costs 4.5% after tax. Value falls because Sugandha pays Rs 2,600 crore for Rs 2,000 crore of standalone value and Rs 400 crore of synergies. Accretion tests the financing; value creation tests the price.

Step 1Why is the deal accretive?

Compare what the money costs with what it buys. Rs 2,600 crore of debt at 6% is Rs 156 crore of interest, Rs 117 crore after tax. Sindoori adds Rs 150 crore of earnings. Combined earnings are Rs 500 crore plus Rs 150 crore less Rs 117 crore, Rs 533 crore, on the same 50 crore shares: Rs 10.66, up 6.6%. The target's earnings yieldEarnings divided by price paid. Sindoori earns Rs 150 crore on Rs 2,600 crore, 5.8%., 5.8%, beats the 4.5% after-tax cost of debt, and that is all accretion measures.

Step 2Why does the deal still destroy value?

Value asks a different question: is the price below what the buyer gets? Sugandha gets Rs 2,000 crore of standalone value plus Rs 400 crore of synergies, Rs 2,400 crore, and pays Rs 2,600 crore, so its shareholders are Rs 200 crore worse off. Buying a flat with a cheap home loan can lower your monthly outgo compared with rent and still be a bad purchase if you paid well above what the flat is worth. Cheap money makes the monthly figure look good; it does not change the price.

Two tests, two answers: EPS rises while value fallsTest 1: earnings per share, RsTest 2: value against price, Rs crore10.00Standalone10.66After deal+6.6%: accretive2,000Standalone400Synergies2,600Price paid-200: value destroyed
Sugandha's EPS rises 6.6% from Rs 10.00 to Rs 10.66, yet it pays Rs 2,600 crore for Rs 2,000 crore of standalone value and Rs 400 crore of synergies, so the deal destroys about Rs 200 crore of value.
Step 3How wide is the gap between the two tests?

Find the price at which each test flips. The deal stays accretive up to a price of about Rs 3,333 crore, where after-tax interest equals Sindoori's Rs 150 crore of earnings, but it creates value only below Rs 2,400 crore. Between the two, any price lifts EPS while making shareholders poorer, and Rs 2,600 crore sits right in that zone. With 4.5% after-tax debt, almost any target earning more than 4.5% on its price looks accretive, which is why accretion alone is a weak defence of a deal.

Price paid for Sindoori, Rs crore: the zone where EPS liesaccretive and creates valueaccretive, destroys valuedilutiveagreed price 2,6002,400 = standalone + synergies3,333 = EPS neutral1,5002,0002,5003,0003,5004,000Cheap debt makes almost any price look accretive; value has a much lower ceiling
Sindoori's price creates value below Rs 2,400 crore and is accretive up to about Rs 3,333 crore, so the agreed Rs 2,600 crore sits in the zone where EPS rises but value is destroyed.

Close with what the market would see. The extra Rs 2,600 crore of debt makes Sugandha riskier, so its P/E may fall, and a lower P/E on higher EPS can leave the share price flat or down. A board should approve on value, use accretion to check the financing is sensible, and ask the bankers why the price is Rs 200 crore above their own valuation. The fix is a lower price, part of the price paid only if synergies arrive, or walking away.

Where candidates lose it

Candidates compute 6.6% accretion and call it a good deal. Accretion is driven by cheap debt here and says nothing about whether Rs 2,600 crore is a fair price.

The second miss is adding the synergies to EPS before testing value, or adding them to value twice: they are already inside the Rs 2,400 crore that the price must beat.

What the interviewer asks next

  • At what interest rate does this deal become dilutive?
  • If Sugandha paid with shares at a P/E of 20, would it be accretive?
  • How would you structure an earn-out to close the Rs 200 crore gap?

Asked at Bank of America, Retail, London, 2026 (Wall Street Oasis): What drives the result, and how would you assess whether the deal creates value?
Asked at J.P. Morgan, Investment Banking, New York, 2025 (Wall Street Oasis): What makes a deal accretive or dilutive?

Company names and figures are illustrative.