M&A 1 Flashcards
what are the types of business combinations
- consolidation
- statutory merger
- stock acquisition
- asset acquisition
what is a statutory merger
one company acquires direct control of another company’s assets, and the target no longer exists (form must follow state law)
what is a consolidation
2 companies merge to form one new company, shareholders exchange stock of old companies for shares of the new combined entity
what are non-tax issues associated with mergers and acquisitions
- transaction costs
- managerial control
- contingent liabilities
- financial accounting
what are the 2 broad categories of M&As and their subcategories
stock and asset purchase
taxable and nontaxable
How to Target’s SHs recompute basis in new shares given a non-taxable asset/stock purchase
FMV shares - PP Gain + PP Loss
what is the key difference between the pooling and purchase method
purchase method - balance sheet is restated to FMV while pooling method remains at book value, if the purchase price exceeds FMV of assets, the remainder is recorded to goodwill
why did many managers prefer the pooling method
purchase method typically had lower income because of the higher depreciation and goodwill amortization due to balance sheet being written up to FMV
under the acquisition method, how are a target’s assets/liabilities valued
FMV
how is goodwill treated for book purposes
it is subject to an annual impairment test, if it is found to be impaired, an expense reflecting the decline in value is recorded and the book value of goodwill is reduced on the balance sheet
what type of acquisition includes double taxation
taxable asset acquisition
who gets the tax burden in the case of a taxable stock acquisition
Target S/Hs
what is Acquiring Co’s adjusted basis in Target’s assets in a taxable asset purchase
Purchase Price
what is the tradeoff for the deferred corp level tax in a taxable stock acquisition/nontaxable acquisition
the lower basis from the carryover allows for less cost recovery = less deductible depreciation expense
