Question

What is more commonly used in mergers, preferred stock or common stock?

Answer 1

Preferred stock is commonly used in mergers. Preferred stock is a hybrid of debt and equity. They carry no voting rights and that is the important reason why they are issued in a merger. The main reasons as to why a preferred stock is issued for financing mergers are

1.To provide long run cost of capital benefits.

2.They provide instant earnings leverage.

3.They allow the different dividend policies of teh merging entities to be reconciled.

4. They prevent immediate dilution of EPS.