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Merge and Acquisition

In: Business and Management

Submitted By dadenden
Words 630
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Strengths and Weaknesses of FV Acct vs Amortized Cost Acct
-Mergers: Exchange of shares, often occur between companies of relatively equal size Acquisition: Purchase a controlling number of the target shares directly from the shareholders in exchange of cash/shares
-M&A
1. Worldwide economy uncertainty • The availability of credit, the regulatory environment, government deficits, sovereign debt crisis, conflicts in the Middle East, oil prices, currency conflicts and governmental austerity
2.Trends:
• Down-sizing and cost-cutting during the economic downturn----Stockpile cash • The sale of portfolio companies owned by private equity interests
-Motives for M&A • Desire to profit from opportunities represented by attractive target valuation • Diversify risk - Reduce earnings volatility and increase value • Achieve operating synergies-economies of scale, pricing power, higher growth, new markets • Financial synergies- increase debt capacity, tax benefits, reduce cost of capital
-M&A Pitfalls • Sellers benefit disproportionately • Acquirers fail to cover cost of capital, resulting in dilution of shareholders value; higher price Overoptimistic appraisal, overestimated synergies, overlooked problems, overbidding
ACCT Standard for Business Combination
1. Purchase Method-True economic substance • Assumption: one entity acquired another for cash or combination of cash and securities • Recognition of acquired assets and liabilities at Fair Market Value • Historic operating results are not combined
2. Pooling Method • Assumption: two similar sized companies combined through an exchange of securities • Adding book values of combined asses and liabilities • Historic operating results are combined • Favored reasons: lower depreciation charges and no amortized expense for goodwill
3....

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