8. Factors Affecting Choice of
Financing Method for M&A
• Acquirer’s liquidity position.
• Acquirer’s recent stock price performance.
• Pre-Acquisition leverage.
• Nature of Business being acquired.
• Ownership and control structure of acquirer
• Ownership and control structure of target firms.
A.G
9. Cash vs Stock offer
Buyer IncBuyer IncBuyer IncBuyer Inc Seller IncSeller IncSeller IncSeller Inc
$5B = 50M × $100 $2.8B = 40M × $70
$1.7B
• Buyer Inc announce offer to buy all shares of Seller
Inc at $100 per share.
• Value placed on Seller Inc is $4B, a premium of $1.2B
A.G
10. Shareholder Value Added
• Difference between estimated value of synergy
and acquisition premium
• If Buyer Inc. chooses to pay cash then
SVA = $1.7B(expected synergy) - $1.2B(premium) = $500M
A.G
11. • If Buyer Inc. finance by issuing new shares
• acquiring shareholders will own 55.5% of total
90M shares
• their expected SVA is 55.5% of $500M i.e
$277.5M
A.G
15. References
• Ray, K. (2011). Mergers and acquisitions:
Strategy, valuation and integration. New Delhi:
PHI Learning Private Limited.
• Stock or Cash?: The Trade-Offs for Buyers and
Sellers in Mergers and Acquisitions. (1999,
November 1). Retrieved September 8, 2015.