There are 3 forms of integration: statutory (target dissolved), subsidiary (target becomes subsidiary), and consoldiation (whole new firm formed). The types are horizontal, vertical, conglomerate. There are also 2 forms of acquisition: stock purchase (payment to shareholders) and asset purchase (payment to company). And there are 2 forms of payment: cash or stock. Does any of this conflict, particulary the forms of acquisition and forms of payment. Am I correct to assume that stock purchases are financed by paying stock and asset purchases are financined by paying cash, or are the terms unrelated? Also, in the M&A reading (#32) it seems that mergers and acquistions are accounted for the same way–is this correct? Thanks!
anyone can comment on this? ill try again now that its after work hoursl.
a stock purchase means that the buyer purchases the entire entity…and with it comes all the assets and ALL the liabilities…even liabilities that happened before the transaction…a stock purchase does not mean you pay with cash or stock…the seller in a asset or stock purchase most of the time gets cash. in a asset purchase…the buyer gets to pick what assets it wants and it generally does not carry along any liabilities in the purchase…the seller is left with any liabilities arising out of the sold assets that were incurred in the past. for example, a manufacturer spill toxins in water…and the EPA finds out 10 years after the subsidiary that casued the spill has been sold off. it the sale of the sub. was an asset sale, the seller is liable for the clean up and fines…if the sale was an equity sale…the new owner is liable for the clean up and any fines. asset sales are sweet deals…that is why they only happen in distrissed situations…if chrysler or gm file for BK or liquidation…they will be sold off in asset sales the new owners of the plants / brands will not be on the hook for any UAW pension claims (or any other liabilities) and what not…they will be sweet deal for any car manufacturer looking to beef up their us operations.
hey blue, thanks for the help. i get all this stuff you said about asset vs stock purchases and it makes sense–thanks. so when you say that the selle in an asset or stock purchase most of the time gets cash, then what form of acquisition does payment acquire via stock? also, is the above terminology in my first post interchangeable between mergers and acquisitions? thanks.