Page 467 - SBR Integrated Workbook STUDENT S18-J19

Answers

Example 5

Identifying the acquirer

The acquirer in a business combination is normally the entity that has
transferred cash or other assets, or which has issued equity instruments.

When equity is issued in a business combination, the following should also be
considered:

 The entity whose shareholders control the combined entity is usually the
acquirer

 The entity whose owners have the ability to appoint the majority of the
board of directors of the combined entity is usually the acquirer

 The entity whose former management dominates the management of the
combined entity is normally the acquirer.

The following point towards Tangerine being the acquirer:

 Tangerine issued equity instruments to affect the business combination

 Tangerine’s former shareholders dominate the combined entity.

The following point towards Clementine being the acquirer:

 The former directors of Clementine control the board of the combined
entity

 The former senior management of Clementine dominate the senior
management team of the combined entity

 Changes to the board and senior management team require a two-thirds
vote and therefore cannot take place without the agreement of the
former shareholders of Clementine.

All things considered, it would seem that the former shareholders of
Clementine have the most influence over the combined entity. Therefore,
Clementine should be identified as the acquirer in the business combination.

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