Financial Management Degree Case Study Example | Topics and Well Written Essays - 3250 words

Financial Management Degree - Case Study ExampleAs the acquirer buys an different company and pays cash to the seats shareholders, the bidding shareholders would be able to retain the same level of affirm in the company because their equity proportion is not diluted. To some shareholders, retaining the level of control over the whole entity after the target company has been acquired is one of the major(ip) considerations (McDougall & Chenhall). Another advantage of cash purchase to the bidding shareholders is that is is simple and straightforward. A cash offer would be more likely attractive to the targets shareholders especially when economic times are not so predictable, therefore the acquisition deal would prove to pee higher success.A major impairment to the acquirer would be the massive sum of cash that it has to prove in order to fulfil the deal. While it is less likely for a company to raise such a huge amount of cash from its retained earnings, it is necessary for th e company to raise it through other room, such as by incurring debt. The dilution of the capital structure of the company through higher debt, which affects its try and credit rating, is a major disadvantage. If the company already has a high amount of debt, the acquirers shareholders would find that the huge amount of debt to raise cash and pay for the acquisition would erode the companys credit rating, and would increase the risk of from each one share that they hold.From the point of view of the targets ... B. Shares exchangeAnother form of merger financing is shares exchange. Instead of remunerative cash, the acquiring company drive out issue more shares for the targets shareholders in exchange for the shares that they hold in the target company. From the point of view of the acquirers shareholders, shares exchange is beneficial in such that the company would not have to be burdened to raise a huge amount of cash through other financing means such as debt, which could put p ressure and increased risk on each of the shares they hold. The companys liquidity short letter would not be compromised in the process (McDougall & Chenhall).Shares exchange have been so attractive during the past decades because of its meeting on the acquirers price/earning ratio. If the target has a low p/e ratio, the acquirer can dispense advantage of it by issuing one share equivalent to more than one share of the targets. This can have a significant impact on the acquirers own p/e ratio. However, one major disadvantage of shares exchange to the acquirers shareholders is the dilution of equity due to the issue of more shares, which leads to the dilution of position and lower level of control over the company.With shares exchange, the targets shareholders go out not incur capital gains tax because no immediate sale of shares has interpreted place. If the targets shareholders sell their new shares in the acquiring company, that is when they pay the capital gains tax. This is one of the advantages. Another advantage is that the targets shareholders will be able to maintain a position in the new combined entity. One disadvantage to the targets shareholders would be that, if the acquiring company fails to generate