Methods of payment (Mergers and Acquisitions)
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Different forms of methods of payment in mergers and acquisitions and their advantages and disadvantage
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Methods of payment (Mergers and Acquisitions)
- 1. Methods of Payment By- Ayush Gupta University Business School MBA-IB A.G
- 3. Methods of Payments • Cash • Share Exchange • Cash Underwritten Share • Loan Stock • Convertible Loan or Preference Shares • Deferred Payment A.G
- 5. Methods of Payments • Cash • Share Exchange • Cash Underwritten Share • Debentures • Convertible Loan or Preference Shares • Deferred Payment A.G BUYERBUYERBUYERBUYER SELLERSELLERSELLERSELLER
- 6. BUYERBUYERBUYERBUYER SELLERSELLERSELLERSELLER InstitutionalInstitutional InvestorInvestor InstitutionalInstitutional InvestorInvestor • Cash Underwritten Share A.G
- 7. Methods of Payments • Cash • Share Exchange • Cash Underwritten Share • Debentures • Convertible Loan or Preference Shares • Deferred Payment A.G
- 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
- 12. A.G
- 13. Buyer IncBuyer IncBuyer IncBuyer Inc Seller IncSeller IncSeller IncSeller Inc Cash offer $500M Stock offer $277.5M $222.5M A.G
- 14. See you soon Thank You Very Much
- 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.