Ch 3 Deck 1 Flashcards

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1
Q

Three general sale side processes to sell a business

A

negotiated sale
targeted auction
broad auction

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2
Q

investment banker contacts the most likely buyer and negotiates with that buyer only

A

negotiated sale

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3
Q

this sell-side method is used when there is a strategic buyer who expects synergies from the business combination

A

negotiated sale

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4
Q

advantages of negotiated sale

A

confidentiality
minimum disruption to business
generally faster

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5
Q

disadvantages of negotiated sale

A

seller usually does not get the best possible offer because of lack of competition.

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6
Q

investment banker contacts a limited number of likely buyers (typically two to seven)

A

targeted auction

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7
Q

advantages of targeted auction

A

minimum disruption to the business
generally quicker than broader auction methods
offer tends to be better than a negotiated sale because of the increased competition.

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8
Q

investment banker contacts a larger group of potential buyers (usually over 10)

A

broad auction

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9
Q

Advantages of broad auction

A

offer tends to be higher because of the large range of possible buyers and the increased competition.

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10
Q

disadvantages of broad auction

A

confidentiality rarely maintained

target business often disrupted

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11
Q

reduction in an asset or investment

A

divestiture

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12
Q

company is looking to sell a portion of the business

A

spin-off

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13
Q

Major tax advantage of spinoff is

A

A spin-off can be made tax-free to the parent

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14
Q

To take advantage of a tax-free spin-off, a company must be

A

in business for at least five years

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15
Q

To take advantage of a tax-free spin-off, the SEC requires a company to submit

A

three years of audited financials

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16
Q

spinoffs provide tax advantages to both

A

parent and receiving shareholder

17
Q

a company undergoing restructuring offers shares of a subsidiary in exchange for shares of the parent company

A

split-off

18
Q

The worst acquisition structure for targets shareholders from a tax perspective is

A

asset purchase

19
Q

asset purchase acquisitions are tax disadvantaged for the targets shareholders because

A

they are often subject to double taxation

20
Q

in an asset purchase acquisition, target pays a tax on the gain from

A

the sale of its assets

21
Q

in an asset purchase acquisition, the target’s shareholders pay tax on

A

dividend if the proceeds of the assets sale are distributed to them

22
Q

in an asset purchase acquisition, If the company is liquidated, the shareholders must pay taxes on

A

the difference between the proceeds and their tax basis of their shares

23
Q

Generally, in a stock acquisition in which the buyer pays cash for the target’s shares, and meets all the requirements of section 338

A

the target’s shareholders will need to pay a tax on their gain

24
Q

Generally, in a stock acquisition If the buyer buys the target’s stock with its own stock and meets all the requirements of section 338

A

the target pays no corporate tax and the shareholders can defer taxation until they wish to sell the shares

25
Q

Often in an acquisition, from a taxation perspective, the buyer will prefer

A

an asset acquisition

26
Q

In an acquisition buyers often prefer acquisition of assets so that

A

the buyer will be able to step-up the cost basis of the assets to the fair market price

27
Q

Often in an acquisition, from a taxation perspective, the seller will often prefer

A

a stock acquisition

28
Q

In an acquisition sellers often prefer a stock acquisition in order to

A

avoid paying double tax

29
Q

In an acquisition a seller may prefer an asset purchase if

A

the seller has substantial net operating losses, so that a gain on the acquisition may result in no taxes actually being paid

30
Q

In acquisition selling owners of an S corporation may not mind an asset acquisition because

A

an S corporation is a flow-through entity where tax is only paid once