Page 42 - FINAL CFA II SLIDES JUNE 2019 DAY 6

LOS 25.e: Contrast merger transaction characteristics by form
of acquisition, method of payment, and attitude of target READING 25: MERGERS AND ACQUISITIONS
management.
MODULE 25.2: DEFENSE MECHANISMS AND ANTITRUST

Forms of Acquisition

Stock purchase: shareholders receive compensation, not the company itself:
• Shareholders must approve with at least a majority shareholder vote. Very time consuming unless it is hostile as you can bypassing negotiations with
management and deal direct with shareholders!
• Shareholders bear any tax consequences; If acquire has accumulated tax losses, it can benefits acquirers shareholders because under U.S. rules, these
allowable for stock purchases, but not for asset purchases.
• As it is often for the entire company, acquirer gains target’s assets as well as liabilities.

Asset purchase: the acquirer purchases the target company’s assets, and payment is made directly to the target company.
• Unless the assets are substantial (e.g., more than 50% of the company), shareholder approval is generally NOT required.
• As payment is made to the company, no direct tax consequences for the shareholder. Target pays any capital gains taxes at the corporate level.
• They focus on specific parts or segments of particular interest, rather than the entire company, which means that the acquirer generally avoids assuming
any of the target company’s liabilities. However, an asset purchase for the sole purpose of avoiding the assumption of liabilities is generally not allowed
from a legal standpoint.