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Types of Acquisition
Types of Acquisition
Lecture # 6
Prof Sonali
M&A
3/30/2012
Types of Acquisitions
Assets Purchase Stock Purchase
Prof Sonali
M&A
3/30/2012
Assets Purchase
The acquiring firm purchases specific identifiable assets for
the business These assets are perceived as having potential to add value to he acquiring company In some cases it may also assume specified liabilities . This helps the acquiring company to reduce the risk of taking unknown liabilities
Prof Sonali
M&A
3/30/2012
acquire the assets at a comparatively lower price .This potentially reduces future capital gains tax upon a sale of assets . It increases the future depreciation cost ,thereby reducing income tax If one evaluate this method from point of view of the target company it typically does not prefer this method for it has to pay capital gains tax on the difference between assets sold and purchase price allocated to such assets
Prof Sonali
M&A
3/30/2012
sale for paying dividend to the stockholders ,dividend would be subject to an additional tax thus increasing the burden on the target company . Instead that target company prefer selling the entire business with employees in place and without the need to wind down the company
Prof Sonali
M&A
3/30/2012
assets are listed . Closing deal is comparatively difficult for the following reasons :I. For titled assets such as vehicles and property transferring ,the ownership title of each asset becomes a tedious task . II. The content of the shareholders is required for each transfer . III. If the entire business is being sold ,each employee must be terminated and rehired by the acquirer .this can create lot of employee benefit issues
Prof Sonali M&A 3/30/2012
Stock Purchase
The acquirer purchases the entire outstanding equity of the
target company . The company's outstanding equity consists of shares of its stock held by the investing public (existing shareholders). It is the method where by the acquirer purchases the entire company and all assets and liabilities of the business that come with it Stock purchase does not cause any disruption in the operations which can continue as usual .
Prof Sonali
M&A
3/30/2012
Method is popular because : Closings are simplified Fewer contracts consents and very little paperwork is
required to transfer specific assets All employees and employee benefits are transferred with the stock sale
Prof Sonali
M&A
3/30/2012
One needs to take care that if the shares are widely held ,a
transmittal letter needs to be distributed to shareholders to facilitate the exchange of shares for the consideration by delivery of their stock certificates Transmittal letters often accompany reports and inform readers of a report's context. Typically, the letter includes information not found in the report. For example, the letter contains information about the particular project and/or due dates..
Prof Sonali
M&A
3/30/2012
stock sold which is not subject to depreciation and purchase price for stock No dividend has to be paid to distribute the proceeds of sale to the stockholders and double taxation can be avoided Target company is not required to tackle any issues relating to winding up of the company
Prof Sonali
M&A
3/30/2012
Prof Sonali
M&A
3/30/2012
Difference acquisition
between
Merger
and
Prof Sonali
M&A
3/30/2012
acquirers business
Prof Sonali
M&A
3/30/2012
The most common reasons for the failure are as follows :Unrealistic price paid for target II. Difficulties in cultural integration E.g. :- Daimler Benzs culture stressed on a more formal and structured management style ,Chrysler favored more relaxed freewheeling style III. Overstated synergies IV. Integration difficulties V. Inconsistent strategy VI. Poor Business Fit VII. Inadequate Due Diligence
I.
Prof Sonali M&A 3/30/2012
Prof Sonali
M&A
3/30/2012
References
Meregrs and Acqusitions
- Rajinder Arora
Prof Sonali
M&A
3/30/2012