All-Cash Deal
An all-cash deal is an acquisition where one company pays cash to purchase the outstanding equity of another company. The precept here is that when buying with cash, there is less risk in the share price of the acquiring company going down, like it usually does, after the acquisition.
When one company buys another one, deal makers have a choice about what currency they want to use. We don't just mean choosing Euros or Yen or Quatloos or Dollars or whatever. The choice is even broader than that. The buying company might not even use money at all. Instead, one company could offer the other company's shareholders an exchange of stock.
In this case, shareholders of the company getting bought effectively become part owners in the company that's making the acquisition. They give up 100% ownership in the one company for a smaller stake in the bigger, combined company. The issue: You can't buy a meal in Las Vegas with company stock. (Or anywhere else, really, but we're trying to coin a phrase here).
To do anything else but get invited to shareholders' meetings, you would have to sell at least some of that stock to get cash in order to buy stuff. Meanwhile, using stock also causes a valuation issue, because the stock of both companies are moving day-to-day, meaning valuation is constantly changing. However, the all-cash deal has downsides as well. Because the shareholders are receiving a big pile of cash all at once, they might be on the hook for a big tax bill.
Companies can also split the difference, paying for acquisitions with a combination of of cash and stock. Deciding how to structure an acquisition (including whether to use cash or stock) is a big part of the negotiation process surrounding potential mergers. Like doing this? Become an investment banker. And make bank.
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Finance: What's the difference between m...22 Views
Finance allah shmoop what's the difference between mergers and acquisitions
all right people listen up Merger that's what's about to
happen here it's a merger acquisition that's what's about to
happen here Corporate america is kind of same thing when
two companies merge while they generally you know attracted to
each other hopefully respect each other they share stock or
combined the stocks of each side and you know combine
efforts and then and then cuddle afterwards if they're successful
at the merger than the combination of two roughly equals
yields more than the one plus one combo that made
them so two companies get together on generally equal ish
footing In that case acquisitions are a combining more like
that eating thing on much different footing The large company
eats or buys the target either using its more highly
valued stock currency or it's taft to do so Well
why would a company acquire another Well the target might
have one hundred employees ninety of whom can be fired
with massive expense savings after the acquisition For the acquirer
such that economically the acquisition won't just makes a whole
lot of financial sense acquisitions happen for market power reasons
As well like imagine the negotiating leverage that amazon would
have if it bought the next five biggest online retailers
Or maybe it'll just kill them Probably not legal for
them to buy him anyway given the monopoly like dominance
of amazon these days But wow that would be a
powerful set of acquisitions And that would be a good
reason for ems on to acquire a whole bunch Things
and bezos would grow even more powerful maybe too powerful
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