Two tile makers propose a merger of equals with a 55/45 ownership split. Run a contribution analysis and say whether the split is fair to the smaller company.

The 45% is fair to Kesaran, and generous on most measures. Kesaran brings 40% of revenue, 45.5% of EBITDA, 42.9% of net income and 40% of market value. Only EBITDA supports more than 45%. At 45% of a combined Rs 4,000 crore, Kesaran's holders get Rs 1,800 crore of value for Rs 1,600 crore, a 12.5% premium, before the net debt check.

Two friends opening a shop together split it by what each brings: cash, customers, the lease. A contribution analysis lines up what each company brings on each measure, revenue, EBITDA, net income and market value, and compares those shares with the proposed ownership. No single line is the answer. Revenue ignores margins, EBITDA ignores debt and tax, net income is distorted by one-offs and financing, and market value is what investors already think. The range across them is where a fair split should sit.

Because it is the more profitable business. Kesaran earns a 25% EBITDA margin against Pelvora's 20%, so its share of EBITDA, 45.5%, is well above its 40% share of revenue; but it keeps less of that EBITDA as net income, so by the time you reach the bottom line its share falls to 42.9%. Something between EBITDA and net income, interest, depreciation or tax, costs Kesaran proportionally more. The likeliest candidate is debt, which is why the missing net debt figure matters: EBITDA contribution should be compared on enterprise value, and if Kesaran carries more debt, its equity contributionThe share of the combined equity value each side brings, after deducting each company own net debt from its enterprise value. is lower than its EBITDA share suggests.

Give the number, then the condition. At 45%, Kesaran's shareholders receive Rs 1,800 crore of the combined Rs 4,000 crore market value for a company worth Rs 1,600 crore today, a 12.5% premium, while Pelvora's holders give up 8.3%; that is a good outcome for Kesaran in a deal called a merger of equals. The board should accept the split in principle, subject to the net debt check: if Kesaran's net debt is much higher than Pelvora's, the EBITDA argument weakens further and 45% becomes even more favourable; if it is lower, Kesaran could argue for a point or two more. Advising Pelvora, you would argue the opposite: 55% undervalues a business that brings 57% to 60% on three of four lines.

Close on the limits. Contribution analysis ignores synergies, which belong to both sides, and growth, which may differ: if Kesaran grows faster, its future contribution is larger than its current one. It is a sense check on a negotiated split, not a valuation, and a fairness opinion would sit it alongside a DCF and trading comparables for each side.