M&A cheat - Special Purpose Acquisition...

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Unformatted text preview: Special Purpose Acquisition Corporations (SPACs)- These are companies that are formed to acquire other companies, They raise capital such as in an IPO, The shareholders do not know at the time they invest what the acquisition target is going to be They are sometimes called Blank Check Corporations They are an alternative to private equity funds Approval of Deal : Shareholders get to vote to approve the proposed acquisition Disposition of Funds : Also the bulk of the money raised (i.e., 80%) has to be spent on the acquisition Time Frame : If they do not find a shareholder approved deal within 1 to 2 years, the money must be returned to investors Popularity : Used to be lowly regarded investments but recently have become quite popular Founders and Management Compensation : Management gets 20% of the company - and they invest little this gives management an incentive to do a deal -- not necessarily the best deal they do not get fee until a deal is done leveraged buyout- debt is used to make a public company private statutory merger- legal name Subsidiary merger a merger of two companies in which the target becomes a subsidiary; May allow the buyer to keep the target as a separate subsidiary corporation and insulate the parent company from the targets liabilities Tender Offer where a bidder makes an offer directly to the target companys shareholders, Usually done in hostile deals 2tier Tender- AKA Front End loaded, divided into two buyout phases Consolidation where two equal-sized companies combine and a whole new company is created <> (holding) Parent company owns sufficient stock in target to control target <> Usually can be achieved for less than 51% <> May be as low as 10% <> An alternative to 100% acquisition Advantages: <> Lower cost do not have to buy 51% or 100% <> No control premium <> May get control without soliciting target shareholder Approval Disadvantages: Triple taxation of dividends ( <> If parent owns 80% or more dividends are exempt from taxation <> If own less than 80% then 80% of dividends are exempt from tax) Easier to disassemble if Justice Department finds:...
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This note was uploaded on 06/29/2011 for the course FIN 322 taught by Professor Zhu during the Spring '11 term at Oakland University.

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M&amp;A cheat - Special Purpose Acquisition...

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