Retirement and estate planning | Business & Finance homework help

Don't use plagiarized sources. Get Your Assignment on
Retirement and estate planning | Business & Finance homework help
Just from $13/Page
Order Now

1) Summarize the article (in 250 words).

2) What key messages do you take away from this article? (in 200 words)

 

3) Do research and find a company (or companies) that had similar experience discussed in the article ? (in 100 words) [Please ensure to cite your reference]

 

The form of payment refers to the composition of the purchase price for a target firm and can be structured in many different ways. This section discusses alternative structures that can be used as payment in negotiating with a target firm’s board and management and how these various forms of payment can be used to bridge differences between the seller’s asking price and the price the acquirer is willing to pay.

Cash

Cash is the simplest and most commonly used means of payment for acquiring shares or assets. Although cash payments generally result in an immediate tax liability for the target company’s shareholders, there is no ambiguity about the value of the transaction as long as no portion of the payment is deferred. Whether cash is used as the predominant form of payment depends on a variety of factors, including the acquirer’s current leverage, potential near-term earnings per share dilution, the seller’s preference for cash or acquirer stock, and the extent to which the acquirer wishes to maintain control.

A bidder may choose to use cash rather than issue voting shares if the voting control of its dominant shareholder is threatened as a result of the issuance of voting stock to acquire the target firm. [4] Issuing new voting shares would dilute the amount of control held by the dominant shareholder. The preference for using cash appears to be much higher in Western European countries, where ownership tends to be more heavily concentrated in publicly traded firms, than in the United States. In Europe, 63% of publicly traded firms have a single shareholder who directly or indirectly controls 20% or more of the voting shares; the U.S. figure is 28%. [5]

Noncash

The use of common equity may involve certain tax advantages for the parties involved—especially shareholders of the selling company. However, using shares is much more complicated than cash because it requires compliance with the prevailing security laws and may result in long-term earnings per share dilution. Using convertible preferred stock or debt can be attractive to both buyers and sellers. These securities offer holders the right (but not the obligation) to convert to common stock at a predetermined “conversion” price. Convertible preferred stock provides some downside protection to sellers in the form of continuing dividends, while providing upside potential if the acquirer’s common stock price increases above the conversion point. Acquirers often find convertible debt attractive because of the tax deductibility of interest payments.

The major disadvantage in using securities of any type is that the seller may find them unattractive because of the perceived high risk of default associated with the issuer. When offered common equity, shareholders of the selling company may feel that the growth prospects of the acquirer’s stock may be limited or that the historical volatility of the stock makes it unacceptably risky. Debt or equity securities may also be illiquid because of the small size of the resale market for such securities.

Acquirer stock may be a particularly useful form of payment when valuing the target firm is difficult, such as when the target firm has hard to value intangible assets, new product entries whose outcome is uncertain, or large research and development outlays. In accepting acquirer stock, a seller may have less incentive to negotiate an overvalued purchase price if it wishes to participate in any appreciation of the stock it receives. However, a seller could attempt to negotiate the highest price possible for its business and immediately sell its stock following closing. [6]

Other forms of noncash payment include real property, rights to intellectual property, royalties, earn-outs, and contingent payments. These are discussed later in this chapter.

Cash and Stock in Combination

The bidding strategy of offering target firm shareholders multiple payment options increases the likelihood that more target firm shareholders will participate in a tender offer. It is a bidding strategy common in “auction” environments or when the bidder is unable to borrow the amount necessary to support an all-cash offer or unwilling to absorb the potential earnings per share dilution in an all-stock offer. The multiple-option bidding strategy does, however, introduce a certain level of uncertainty in determining the amount of cash the acquirer ultimately will have to pay out to target firm shareholders, since the number of shareholders choosing the all-cash or cash-and-stock option is not known prior to completion of the tender offer.

Acquirers resolve this issue by including a proration clause in tender offers and merger agreements that allows them to fix—at the time the tender offer is initiated—the total amount of cash they will ultimately have to pay out. For example, assume that the total cost of an acquisition is $100 million, the acquirer wishes to limit the amount of cash paid to target firm shareholders to one-half of that amount, and the acquirer offers the target firm’s shareholders a choice of stock or cash. If the number of target shareholders choosing cash exceeds $50 million, the proration clause enables the acquirer to pay all target firm shareholders tendering their shares one-half of the purchase price in cash and the remainder in stock.

[4]Faccio and Marsulis, 2005

[5]Faccio and Lang, 2002

[6]In a sample of 735 acquisitions of privately held firms between 1995 and 2004, Officer et al. (2007) found that acquirer stock was used as the form of payment about 80% of the time. The unusually high (for acquirers) 3.8% abnormal return earned by acquirers in this sample around the announcement suggests that sellers willing to accept acquirer stock were more likely to see significant synergies in merging with the acquiring firm.

Calculate your paper price
Pages (550 words)
Approximate price: -

Why Choose Us

Quality Papers

At Myhomeworkwriters.com, we always aim at 100% customer satisfaction. As such, we never compromise o the quality of our homework services. Our homework helpers ensure that they craft each paper carefully to match the requirements of the instruction form.

Professional Academic Writers

With Myhomeworkwriters.com, every student is guaranteed high-quality, professionally written papers. We ensure that we hire individuals with high academic qualifications who can maintain our quality policy. These writers undergo further training to sharpen their writing skills, making them more competent in writing academic papers.

Affordable Prices

Our company maintains a fair pricing system for all academic writing services to ensure affordability. Our pricing system generates quotations based on the properties of individual papers.

On-Time delivery

My Homework Writers guarantees all students of swift delivery of papers. We understand that time is an essential factor in the academic world. Therefore, we ensure that we deliver the paper on or before the agreed date to give students ample time for reviewing.

100% Originality

Myhomeworkwriters.com maintains a zero-plagiarism policy in all papers. As such, My Homework Writers professional academic writers ensure that they use the students’ instructions to deliver plagiarism-free papers. We are very keen on avoiding any chance of similarities with previous papers.

Customer Support 24/7

Our customer support works around the clock to provide students with assistance or guidance at any time of the day. Students can always communicate with us through our live chat system or our email and receive instant responses. Feel free to contact us via the Chat window or support email: support@myhomeworkwriters.com.

Try it now!

Calculate the price of your order

You will get a personal manager and a discount.
We'll send you the first draft for approval by at
Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Homework Writing Services

My Homework Writers holds a reputation for being a platform that provides high-quality homework writing services. All you need to do is provide us with all the necessary requirements of the paper and wait for quality results.

Essays

Essay Writing Services

At My Homework Writers, we have highly qualified academic gurus who will offer great assistance towards completing your essays. Our homework writing service providers are well-versed with all the aspects of developing high-quality and relevant essays.

Admissions

Admission and Business Papers

With Myhomeworkwriters.com, we will help you secure a position at your desired institution. Our essay writing services include the crafting of admissions papers. We will still help you climb your career ladder by helping you write the official papers that will help you secure a job. We will guide you on how to write an outstanding portfolio or resume.

Editing

Editing and Proofreading

Myhomeworkwriters.com has a professional editorial team that will help you organize your paper, paraphrase it, and eliminate any possible mistakes. Also, we will help you check on plagiarism to ensure that your final paper posses quality and originality.

Coursework

Technical papers

My Homework Writers harbors professional academic writers from diverse academic disciplines. As such, we can develop homework writing services in all academic areas. The simplicity or complexity of the paper does not affect the quality of homework writing services.