Question

(b) Critically discuss factors that influence a company to finance a takeover by

i. Share-for-share offer

II. cash offer financed by an issue of bonds.

Answer 1

B. Factors that will influence a company to finance the takeover by-

1. Share for share offer- In a share for share offer, it is not clearly reflected that who is the buyer and who is the seller.

Company which will be paying for the acquisition with the stock will be sharing both the value and the risk of the transaction with shareholders of the company.

This will also be affecting the return of the shareholders from those companies.

These kinds of acquisitions will be cheaper and the company can settle it with issue of shares.

B) Cash offer financed by issuing bonds-

In cash offers, the financing is done by issue of cash and in this case, the company is issuing the bonds for a specific amount of cash.

The amount of acquisition will be certain in nature and will not be fluctuating.

Roles of both the parties will be clear cut and clearly defined.

Risk and benefits of synergy will not be shared with those of the shareholders as in stock for stock transactions.

It will be a lesser risky transaction then stock for stock transactions.