Question

explain
merger or acquisition consolidation, which is its characteristics, and an example.
stock for stock acquisition,which are its characteristics and an example

Assets for stock acquisition, which are its characteristics and an example.

Answer 1

Merger or acquisition consolidation, which is its characteristics, and an example.

In a merger, the boards of directors for two companies approve the combination and seek shareholders' approval. After the merger, the acquired company ceases to exist and becomes part of the acquiring company. Its characteristics include:

• two companies join their operations
• giving companies cost advantage of savings from combined operations
• leading to expansion of territory and more financial resources

Example includes Merger of Vodafone and Idea telecommunications in India

Stock for stock acquisition,which are its characteristics and an example

In this transaction, the acquiring company gives cash and/ or stocks to the shareholders of the target company in exchange for the stock of the target company. The characteristics of this transaction are:

The shareholders of the target company (and not the target company) receive the compensation. Therefore, a majority vote from shareholders is required to approve the merger transaction. It can be a lengthy procedure but preferred in a hostile merger.

Any tax issues related to the transaction will be borne by the shareholders. They need to pay taxes on any gains. However, the company is not bound to pay any taxes.

Mostly stock purchases deal with purchasing the entire target company, and not a part of it. So, the acquiring company gains both the assets and the liabilities of the target company.

Example includes comcast and time warner cable

Assets for stock acquisition, which are its characteristics and an example.

In this transaction, the acquiring company purchases only the assets of the target company. The payment is directly done to the acquired company. The transaction has the following characteristics:

Generally, there is no need for shareholder’s approval, unless the percentage of assets is substantial.

Since the company receives the payment, it is liable to pay all capital gain taxes related to the transaction. The shareholder does not have any tax consequences directly.

Since an asset purchase is directed more towards buying a particular part of the company that interests the acquirer, and not the entire company, it may translate into the acquirer avoiding assuming any liabilities of the company. However, legally such transactions are not allowed where the asset is purchased and the liabilities are clearly avoided.

Example is of acquisition of flipkart (India) by Walmart