Merger Transaction

Acquisition: Form of integration

Potential target company	Optimal form of acquisition	Method of payment	Attitude of target
B	Purchase of the target's 30% assets	Cash offering	friendly
C	Stock purchase	Securities offering	friendly
D	Stock purchase	Mixed cash and securities offering	hostile
E	Stock purchase	Cash offering	friendly

(Question)
Which of the following statements concerning the transaction characteristics of the potential mergers with an acquiring company A is most appropriate?

A. Purchasing E is most likely to reduce A's financial leverage.
B. C would like to avoid paying corporate taxes in the potential deal with A.
C. B's shareholders would likely be required to approve the deal with A before any proposed deal is completed.

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Answer: B

The acquisiton of C is described as a stock purchase, which means that C's shareholders would be needed to pay capital gain taxes on the deal and no taxes would be levied against C at the corporate level.

The deal with E is desribed as a cash offering. In most cash offerings, the acquirer borrows money to raise cash for the deal, which would increase the acquirer's financial leverage.

In the deal with B, shareholders generally only approve asset purchases when the purchase is substantial (greater than 50% of firm assets).

(FYI)
In a proxy battle for D, A would try to have shareholders approve new members of the board of directors to try to gain control of the company. Trying to purchase shares from shareholders individually is a tender offer.