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JPMorgan M&a Bible

JPMorgan M&a Bible

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Published by: wallstreetprep on Jan 31, 2012
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03/12/2015

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Relevance of merger accounting to M&A

Accounting treatment of a transaction plays a major role in evaluating and
structuring a deal

Post-merger reported earnings affect stock price and shareholder value

Credit impact can affect ability of company to support acquisition debt, pay
dividends and finance future expansions

Determinants and methods of M&A accounting

Acquiror’s accounting treatment is a function of:
Percent of target purchased
Form of consideration
Legal structure
Financial history

Consolidation generally required if 50 percent or more of target voting stock is

owned

M&A accounting goals

Maximize EPS

Minimize EPS dilution
Acquirors are frequently willing to accept some dilution in early years
Optimize credit rating

Maximize financial performance ratios

J.P. Copyright © 1997 Morgan Guaranty Trust Company of New York. All rights reserved.n

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82890cl6

Accounting for acquisitions

Exhibit: Decision tree for accounting for investments in voting equity securities and assets

90-100% voting
stock
Meet pooling
tests

Pooling of
interests
accounting

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