What are the main characteristics of cash payments in corporate mergers and acquisitions? What are the advantages and disadvantages?

Features: Once the shareholders of the target company receive the cash payment for the shares they own, they lose any interest in the original company. For the acquiring company, payment in cash does not dilute the original shareholders' interests in any way, but there is a heavy immediate cash burden.

I. Advantages of cash payment:

1. Valuation is simple and straightforward.

2, from the acquirer's point of view, cash as a payment tool is the biggest advantage of speed, so that the target company with hostile sentiments can not be caught by surprise, can not get enough time to implement anti-takeover measures, but also with the acquiring company bidding for the company or a potential rival company due to the difficulty of raising a large amount of cash can not fight against, in favor of the acquisition transaction completed as soon as possible.

3, for the target company, the cash acquisition can be its virtual capital in a short period of time into cash, the target company does not have to bear the risk of securities, and will not be affected by the merger company's development prospects, the interest rate and inflation rate changes, the delivery is simple and clear, so it is often the target company is most willing to accept the acquisition of a payment method.

The disadvantages of cash payment:?

1, for mergers and acquisitions, cash acquisition of the target company, the existing shareholders' rights and interests will not be "watered down", but is a heavy immediate cash burden.

2. For the shareholders of the target company, a cash acquisition prevents them from deferring the recognition of capital gains, which results in earlier tax payments and prevents them from enjoying tax benefits.

Expanded Information

The purchaser, in choosing the payment method, should mainly consider the purpose of the merger and acquisition, supplemented by other factors.

1. The purpose of buying a shell listing is mainly to obtain the qualification of the acquired party to be able to raise funds directly from the securities market. If the acquirer pays in cash, it may bring financial pressure on the business turnover of the enterprise, but also because the business quality of the acquired enterprise is not high,

After the merger and acquisition, it is difficult to form the advantage of the cash flow to repay the debt, at this time, it should be the merged party's original business of the whole divestment. Therefore, it is better for the acquirer to choose the asset replacement method to implant its own high-quality business.

2. Financial reorganization, which is based on the acquired party's mismanagement or governance structure deficiencies, resulting in its market value is far below the value created by the operating capacity. Financial reorganization means that the acquirer will aim to capture this management gain or governance gain. This type of M&A generally opts for a cash payment.

3. Strategic restructuring is aimed at maximizing the value of the integration of the business on the premise of full cooperation between the stakeholders of both sides of the merger and acquisition, especially the management. Because it is a cooperative reorganization, the interests of both parties to the merger and acquisition are to be realized from the continuing business activities of the surviving enterprise after the merger and acquisition, so this kind of merger and acquisition adopts the equity payment method, which can reduce the pressure of payment at the time of the merger and acquisition, and at the same time bear the risk together with the merged party ****.

Baidu Encyclopedia - Cash Mergers and Acquisitions

Baidu Encyclopedia - Cash Acquisitions

Baidu Encyclopedia - Payment for Mergers and Acquisitions