Equity Inv. greater than 50 pekrcent ownership

Equity Inv. greater than 50 pekrcent ownership -...

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University of Rhode Island BUS 402 Advanced Accounting 2010 - 2011 Joseph M. D’Adamo Course Outline #4: Equity Investments of over 50% Ownership Page 1 of 46 I. Equity Investments with  Control   (over 50% Ownership Interest in Investee) INVESTOR’S % OWNERSHIP INTEREST IN INVESTEE’S COMMON STOCK 0% 20% 50% 100% No Influence No Control Significant  Influence Controlling Interest Passive  Stockholder Active Long-Term  Stockholder Parent Company Stockholder A. Nature of Investments Investor (acquirer)  obtains control  of another company (acquiree) through investments in its  stock (or its net assets)  Control  refers to the ability of the investor to  establish operating and financial policies   Transactions to gain control referred to as  Business Combinations  Business Combinations  completed through transactions using  various structures  driven by  legal, tax,  and  practical considerations    Three basic structures Smaller Acquiree  may be  Merged with Acquirer   Legal dissolution of acquiree  as a separate entity Acquirer  and  Acquiree  sometimes  Consolidated  into an entirely  new Firm May create a  Parent-Subsidiary  relationship   Acquisition  transaction
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Course Outline #4: Equity Investments of over 50% Ownership Interest Page 2 of 46 Firms  use  Business Combinations  as part of their  Competitive Strategies o Horizontal Integration o Vertical Integration o Conglomerates o Congeneric Combination Horizontal Integration Business combination of entities at the same level of the value-chain that offer similar products in similar  markets Acquirer seeks competitive advantages such as:  a) Synergies from combining economic, business, and human resources b) Growth from expanded market share, brands, products, etc. c) Benefits from acquired talent, expertise, infrastructure, etc. d) Cost advantage through economies of scale   Real-World Horizontal Integration Hasbro Inc. acquired competing toy and game companies  such as Milton Bradley, Tonka, Parker  Brothers, and more recently, Cranium as wholly-owned subsidiaries Stated Goals/Benefits:   a) Growth from expanded brands and complementary product offerings b) Leverage Hasbro’s worldwide distribution network and international presence to provide  subsidiaries and their products access to global markets   Vertical Integration Business combinations of entities at different levels of the value-chain  Acquirer seeks competitive advantages by gaining control of its suppliers (the supply end) and its  distribution channels (the demand end) a) Synergies from combining economic, business, and human resources
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This note was uploaded on 04/03/2012 for the course BUS 402 taught by Professor Joshephd'adamo during the Fall '09 term at Rhode Island.

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Equity Inv. greater than 50 pekrcent ownership -...

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