Question

Kraft paid 40 percent of the acquisition price in new shares and 60 percent in cash. Which payment mode generally would acquirer’s shareholders prefer?   Which payment mode generally would target company’s shareholders prefer? Briefly explain why?

Answer 1

The form of payment usually preferred by shareholders of the acquiree is Cash. These are preferred by the shareolders who are not able to sell their stock by other means. However, receiving cash payment means that immediate payment of income taxes on the gains, if any.

From the point of view of acquirer, cash payments has both merits and demerits.. One of the advantages of accepting of cash is that, in case of competitive bidding situation, seller accepts easily when the buyer pays the amount in cash.

So, therer are merits and demerits to both the acquirer’s shareholders as weel as to the target company’s shareholders.