From the examples I saw i the merger bid evaluation stuff in CF, it seems that mergers are either assumed to be through cash payments or more equity issued (but there’s no discussion of Debt and any effort to maintain a particular leverage ratio). Would this be a realistic assumption to say either Equity or Cash and No debt taken on for acquisition?
No, it’s not necessarily a realistic assumption. For example, LBOs use exclusively issue debt to acquire. Sure, there are all stock/cash transactions, but from my experience, there’s usually a debt component in financing the purchase. Most of the Electric/Natural Gas utility (the only industry I have worked in) mergers I’ve been a part of have issued debt. Often times, the capital structure of the deal replicates, or is very close to, the purchasers actual book vale capital structure.
The new combined or consolidated firm would still comply with debt strucure and in case of dilution of equity iif its
a cash offering there is deviation from its optimal capital structure. As records indicate majority of the mergers turn out to be successful for targets whereas acquirers misevaluate synergies resulting in upfront loss.Why is gain to target and loss to acquirer taken ditinctly as two separate parties although they are now combined?