The Transition Companies Buying a Biz
Posted by The Transition Companies on July 12, 2009 under The Transition Companies Buying a Biz
Closing the Deal from The Transition Companies
Finally, once the target company agrees to the tender offer and regulatory requirements are met, the merger deal will be executed by means of some transaction. In a merger in which one company buys another, the acquiring company will pay for the target company’s shares with cash, stock or both.
A cash-for-stock transaction is fairly straightforward: target company shareholders receive a cash payment for each share purchased. This transaction is treated as a taxable sale of the shares of the target company.
If the transaction is made with stock instead of cash, then it’s not taxable. There is simply an exchange of share certificates. The desire to steer clear of the tax man explains why so many M&A deals are carried out as stock-for-stock transactions.
When a company is purchased with stock, new shares from the acquiring company’s stock are issued directly to the target company’s shareholders, or the new shares are sent to a broker who manages them for target company shareholders. The shareholders of the target company are only taxed when they sell their new shares.
When the deal is closed, investors usually receive a new stock in their portfolios - the acquiring company’s expanded stock. Sometimes investors will get new stock identifying a new corporate entity that is created by the M&A deal.
The Transition Companies Buying a Biz