Chapter 30 - Mergers and acquisitions

Chapter 30 - Mergers and acquisitions - Chapter 30 Mergers...

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Chapter 30 Mergers and acquisitions 30.1 The basic forms of acquisitions There are three legal procedures that one firm can use to acquire another firm Mergers or Consolidation Merger – refers to the absorption of one firm by another Acquiring firm retains its name and its identity and it acquires all of the assets and liabilities of the acquired firm Acquired firm ceases to exist as a separate entity (+) legally straightforward and does not cost as much as other forms of acquisition →avoids the necessity of transferring title of each asset (-) requires appraisal by both parties’ shareholders Consolidation – same as merger except that an entirely new firm is created Both the acquired and acquiring firms cease to exist as separate entities and form a new one Acquisitions by merger and consolidation result in combinations of assets and liabilities Acquisition of stock Purchase the firm’s voting stock in exchange for cash Private offer – from the management of one firm to the other Tender offer – public offer to buy shares of a target firm →directly to the shareholders of another firm o No shareholder meetings must be held →no vote required o Bidding firm can deal directly with the shareholders and can bypass the management and board of directors o Resistance by the target firm’s management makes the acquisition of stock more expensive o Minority of shareholders will usually hold out o Complete absorption requires a merger → later on Acquisition of assets One firm can acquire another firm by buying all of its assets →formal vote of the shareholders of the target firm is required →circumvent potential minority shareholders Legal process of transferring assets can be costly A classification scheme Horizontal – same industry; competitors Vertical – different steps of the production process Conglomerate – unrelated A note on takeovers Takeover – transfer of control of a firm from one group of shareholders to another Bidder – firm that has decided to take over another company o Bidder offers consideration (stock, cash) for control over stocks and assets Takeovers can occur by acquisition, proxy contests and going-private-transactions Proxy contest – group of shareholders attempts to gain controlling seats on the board of directors by voting in new directors 1
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Chapter 30 Mergers and acquisitions o Proxy – authorizes the proxy holder to vote on all matters Going-private-transactions – all the equity shares of a public firm are purchased by a small group of investors (members of management) →delisting 30.2 The tax forms of acquisitions Taxable acquisition – shareholders of the acquired firm are considered to have sold their shares and have realized capital gains Tax-free acquisition – are considered to have exchanged their shares→ no capital gains →assets are not revalued 30.3 Accounting for acquisitions Purchase method –
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Chapter 30 - Mergers and acquisitions - Chapter 30 Mergers...

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