A.

Closing the Deal

Consolidation The combination of two or more firms into an entirely new firm. The old firms cease to exist.
Though technically different, the termsmerger (where one firm survives) and consolidation tend to be used
interchangeably. A merger or consolidation often begins with negotiations between the management of the
two companies. Usually, the boards of directors of the companies are kept up to date on the negotiations. The
acquirer evaluates many facets of a target company. Terms are agreed on, are ratified by the respective
boards, and are then approved by the common shareholders of both companies. Depending on the corporate
charter, an established majority – usually two-thirds – of the total shares is required. After approval by the
common shareholders, the merger or consolidation can take place once the necessary papers are filed with
the states in which the companies are incorporated. One hurdle remains, however. The Antitrust Division of
the Department of Justice or the Federal Trade Commission could bring suit to block the combination. To
block a merger or consolidation, the government, under Section 7 of the Clayton Act, must prove that a
“substantial lessening of competition” might occur because of it. Usually restraint of competition is
interpreted as applying to either a geographic area, such as food stores in New Orleans, or to a line of
commerce, such as aluminum ingot production. Broader interpretations are possible, and the combination of
two large companies in unrelated lines of business and geographic areas is sometimes suspect simply because
of “largeness” per se. Because the costs of executive time, legal expenses, and other expenses of waging an
antitrust battle are so great, most companies want to be reasonably sure that they will not be challenged
before going ahead with a consolidation
Purchase of Assets or Common Stock
A company may be acquired by the purchase either of its assets or of its common stock. The buying company
may purchase all or a portion of the assets of another company and pay for them in cash or with its own
common stock. Frequently, the buyer acquires only the assets of the other company and does not assume its
liabilities. When an acquiring company purchases the stock of another company, the latter is combined into
the acquiring company. The company that is acquired ceases to exist, and the surviving company assumes all
of the acquired firm’s assets and liabilities. As with a purchase of assets, the means of payment to the
shareholders of the company being acquired can be either cash or common stock.
Taxable or Tax-Free Transaction
If the acquisition is made with cash or with a debt instrument, the transaction is taxable to the selling
company or to its shareholders at that time. This means that they must recognize any capital gain or loss on
the sale of the assets or the sale of the stock at the time of the sale. If payment is made with voting preferred
or common stock, the transaction is not taxable at the time of the sale. The capital gain or loss is recognized
only when the newly received common stock is eventually sold. In addition to the requirement of voting
stock, for a combination to be tax free it must have a business purpose. In other words, it cannot be entirely
for tax reasons. Moreover, in a purchase of assets the acquisition must involve substantially all of the assets
of the selling company, and no less than 80 percent of those assets must be paid for with voting stock. In a
purchase of stock, the buying company must own at least 80 percent of the selling company’s stock
immediately after the transaction.
Accounting Treatment
Purchase (method) Prior to the issuance in the United States of Statement of Financial Accounting
A method of accounting Standards (SFAS) 141 in 2001, a combination of two companies was treated
treatment for a merger either as a purchase or as a pooling of interests. In a purchase, the buyer treats
based on the market the acquired company as an investment. If the buyer pays a premium above the
price paid for the book value of the assets, this premium must be reflected on the buyer’s balance
acquired company. sheet. The purchase method requires that tangible assets be reported at fair
Pooling of interests market value. As a result, it may be possible for the buyer to write up the
(method) A method of acquiredcompany’s tangible assets. If such a write-up occurs, there are higher
accounting treatment for depreciation charges. If the premium paid exceeds the write-up, however, the
a merger based on the difference had to be reflected as goodwill on the buyer’s balance sheet.
net book value of the Moreover, prior to SFAS 142 (also issued in 2001),firms had to amortize goodwill
acquired company’s over some period of time (not to exceed 40 years). Thus accounting earnings
assets. The balance were reduced by the amount of the periodic charges. In addition, as aresult of
sheets of the two 1993 tax law changes, goodwill charges are generally deductible for “tax
companies are simply purposes” over 15 years for acquisitions occurring after August 10, 1993.
combined. Previously, goodwill chargeswere not deductible for tax purposes, which
Goodwill The resulted in a tax disadvantage to firms acquiring goodwill in an asset purchase.
intangible assets of the In a pooling of interests, the balance sheets of the two companies are combined,
acquired firm arising with theassets and liabilities simply being added together. As a result, write-ups
from the acquiring firm of assets and/or goodwill are not reflected in the combination, and there are no
paying more for them charges against future income.
than their book value.  Important Accounting Changes. Because reported earnings are higher
Goodwill must be ested with the poolingof-interests treatment than they are with the purchase
at least annually for treatment, many acquiring companies preferred it. Widespread use of
impairment (or decline). the pooling-of-interests method, however, was largely a US
phenomenon. Most other major countries either ban the method
outright or severely restrict its use. In the late 1990s, the Financial
Accounting Standards Board (FASB) – the professional group that writes
accounting rules for US businesses – proposed a standard that would
force companies to only use purchase accounting. There was a
considerable outcry from businessesagainst this proposal because
accounting earnings would be reduced subsequent to a corporate
merger owing to the amortization of goodwill. After lengthy discussions,
the FASB created a compromise set of requirements. SFAS 141 eliminates
the pooling-of-interests method, allowing only the purchase method for
mergers and acquisitions. SFAS 142 eliminates mandatory periodic
amortization of goodwill for financial accounting purposes, but requires
an impairment test (at least annually) to goodwill. If the market value of
the goodwill is less than its book value, the company must recognize this
impairment by a charge to earnings and acorresponding reduction in the
goodwill balance down to its market value. In December 2007, the FASB
issued a “revised” version of SFAS 141, labeled SFAS 141R, which
continues to shift away from historical costs to reliance on fair value in a
business combination. It affects accounting and reporting requirements
for business acquisitions in fiscal years beginning on or after December
15, 2008. In January 2008, the International Accounting Standards Board
(IASB) issued its own “revised” set of standards for business
combinations, International Financial Reporting Standard 3R (IFRS 3R).
SFAS 141R and IFRS 3R reached the same or similar conclusions on most,
but not all, business combination issues. Remaining differences may be
resolved or narrowed as both the FASB and IASB continue working
toward “convergence” in accounting standards around the world.
Accounting Method Illustrated. To illustrate the purchase accounting
method, let us take a look at a typical merger. ABC Company acquired
XYZ Company in an exchange for ABC common stock valued at $2 million.
XYZ Company had debt of $1 million and shareholders’ equity of $1.2
million prior to the merger, the net book value of its assets being $2.2
million. On the other hand, ABC Company, the acquirer, has
shareholders’ equity of $10 million, debt of $5 million, and assets having
a net book value of $15 million prior to the merger. The effects of the
 merger (in thousands) under the purchase method of accounting are
shown below:

With the purchase method, the total assets of the acquired company are written up by $800,000, which is the
price paid in excess of the net book value of the acquired firm’s assets. Moreover, this amount is reflected as
goodwill and must be subjected to periodic impairment tests in the future. So far we have implicitly assumed
that the fair market value of the assets of the acquired company was equal to their net book value. In many
situations, the fair market value of the assets of the acquired company exceeds the net book value of those
assets. Under the purchase method of accounting, the tangible assets of the acquired company are written up
to their fair market value. This write-up reduces the amount of goodwill. In our example, had the fair market
value of the assets of the acquired company been $2.5 million instead of $2.2 million, the net tangible assets
of the surviving company would have been $17.5 million instead of $17.2 million, and goodwill would have
been $500,000 instead of $800,000. If the purchase transaction is taxable, as defined in the previous section,
the surviving company can claim a larger depreciation expense for tax purposes, which, in turn, enhances cash
flows. This represents an advantage for purchase over pooling if the objective of the firm is to maximize the
present value of after-tax cash flows. To the extent that the objective is maximizing accounting earnings,
however, the purchase method loses its appeal as a greater amount of goodwill must be recorded.

Tender offer Dalam contoh hipotesis kami, negosiasi terbatas pada manajemen dan dewan
Tawaran untuk membeli direktur perusahaan yang terlibat. Namun, perusahaan yang mengakuisisi dapat
saham pemegang saham melakukan tender offerlangsung kepada pemegang saham perusahaan yang
saat ini dengan harga yang ingin diakuisisi. Tender offer adalah penawaran untuk membeli saham
ditentukan, seringkali perusahaan lain dengan harga tetap per saham dari pemegang saham yang
dengan tujuan untuk “tender” (menyerahkan) saham mereka. Harga tender biasanya ditetapkan
mendapatkan kendali secara signifikan di atas harga pasar saat ini sebagai insentif untuk tender.
perusahaan. Tawaran ini Penggunaan tender offermemungkinkan perusahaan yang mengakuisisi untuk
sering dibuat oleh memotong manajemen perusahaan yang ingin diakuisisi, dan karena itu
perusahaan lain dan berfungsi sebagai ancaman dalam setiap negosiasi dengan manajemen itu.
biasanya lebih dari harga Tender offer juga dapat digunakan ketika tidak ada negosiasi tetapi ketika satu
pasar saat ini perusahaan hanya ingin mendapatkan yang lain. Namun, tidak mungkin untuk
mengejutkan perusahaan lain dengan perolehannya, karena Securities and
Two-tier tender offer Exchange Commission memerlukan pengungkapan yang agak luas. Alat
Tender offer   di mana penjualan utama adalah premi yang ditawarkan di atas harga pasar yang ada
penawar menawarkan dari saham. Selain itu, broker sering diberikan komisi menarik untuk saham yang
harga tingkat pertama ditenderkan melalui mereka. Tender offer itu sendiri biasanya dikomunikasikan
yang superior (misalnya, melalui surat kabar keuangan. Pengiriman langsung dilakukan kepada pemegang
lebih tinggi atau semua saham perusahaan yang ditawar jika penawar dapat memperoleh daftar
uang tunai) untuk jumlah pemegang saham. Meskipun suatu perusahaan secara hukum berkewajiban
maksimum (atau untuk memberikan daftar seperti itu, seringkali perusahaan dapat menunda
persentase) saham dan pengiriman yang cukup lama untuk membuat penawar frustrasi.
secara bersamaan Alih-alih satu penawaran tender, beberapa penawar membuat Two-tier tender
menawarkan untuk offer. Contoh dari ini adalah tawaran oleh CSX Corporation untuk Consolidated
memperoleh sisa saham Rail Corporation (Conrail) di akhir
dengan harga tingkat 1990-an. Dengan penawaran dua tingkat, saham tingkat pertama biasanya
kedua (misalnya, lebih mewakili kontrol dan, misalnya, mungkin 45 persen dari stok yang beredar jika
rendah dan / atau penawar sudah memiliki 5 persen. Penawaran tingkat pertama lebih menarik
sekuritas daripada uang dalam hal harga dan / atau bentuk pembayaran daripada penawaran tingkat
tunai) kedua untuk sisa saham. Diferensial dirancang untuk meningkatkan
. kemungkinan berhasil mendapatkan kontrol, dengan memberikan insentif untuk
White knight tender awal. Penawaran dua tingkat menghindari masalah “penunggang bebas”
Pengakuisisi yang ramah, yang terkait dengan tender offertunggal di mana pemegang saham individu
atas undangan memiliki insentif untuk bertahan dengan harapan mewujudkan tawaran balik
perusahaan target, yang lebih tinggi oleh orang lain.
membeli saham dari Perusahaan yang ditawar dapat menggunakan sejumlah taktik defensif.
penawar yang Manajemen dapat mencoba membujuk pemegang saham bahwa tawaran itu
bermusuhan atau bukan untuk kepentingan terbaik mereka. Biasanya, argumennya adalah bahwa
meluncurkan mitra tawaran itu terlalu rendah dalam kaitannya dengan nilai sebenarnya, jangka
balasan ramah untuk panjang perusahaan. Mendengar ini, para pemegang saham mungkin melihat
membuat frustasi premi yang menarik dan menemukan jangka panjang terlalu lama. Beberapa
penawar awal yang tidak perusahaan menaikkan dividen tunai atau mengumumkan pemecahan saham
ramah. dengan harapan mendapatkan dukungan pemegang saham. Tindakan hukum
Shark repellent sering dilakukan, lebih untuk menunda dan membuat frustrasi penawar
Pertahanan yang daripada dengan harapan menang. Ketika kedua perusahaan tersebut adalah
digunakan oleh pesaing, gugatan antimonopoli dapat membuktikan pencegah yang kuat bagi
perusahaan untuk penawar. Sebagai upaya terakhir, manajemen perusahaan yang ditawar dapat
menangkal penawar mencari merger dengan perusahaan "ramah", yang dikenal sebagai white
pengambilalihan potensial knight.
- "hiu."