What are the motives of a merger? What are the accounting considerations? What are the premium offers and stock price movements?
Solution:-
Motives of a merger:
There are various reasons because of which two companies may choose to merge their operations and operate as a merged entity. Following are the key motives behind the mergers:
Accounting considerations:
The primary accounting considerations of a merger transaction are as follows:
Premium offers and stock price movements:
A premium offer refers to the offer wherein the offer value for an entity in the merger is higher or at a premium as compared to the existing stock price. For e.g.- If the stock price of a company is $10, but it receives an offer for merger from company B at a value of $12, it means that the offer has been made at a 20% premium.
Whenever a premium offer is made and the merger is expected to successfully close, the price of the entity who has received a premium offer as compared to its existing price would see its stock going up towards the offer levels in the merger. For e.g.- If the stock price of a company is $10, but it receives an offer for merger from company B at a value of $12, it means that the offer has been made at a 20% premium. In this case, the price of stock A is expected to rise 20% and reach close to the offer value.
There are various other types of stock price movements associated with a merger deal. Following are the key types:
What are the motives of a merger? What are the accounting considerations? What are the premium...
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