M&A Boot Camp booklet 2023 - Flipbook - Page 39
3.
Shares of the acquirer’s stock
a.
Payment of the purchase price in the form of stock of the acquirer
may permit the acquisition to qualify for treatment as a “tax-free”
reorganization for federal income tax purposes
b.
Possible pricing formulations
c.
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i)
“Fixed exchange ratio” (or issuance of a fixed number of
shares of the acquirer’s stock) – e.g. “at the closing, the
acquirer will issue and exchange 2.6 shares of its common
stock for each outstanding target company share” or “at the
closing, the acquirer will issue a total of 2,000,000 shares
of its common stock to the target company’s stockholders”
ii)
“Fixed market value formula” (or “floating exchange
ratio”) pricing, which may be used if the acquirer’s stock is
publicly traded – e.g., “at the closing, the acquirer will
issue $50,000,000 of its common stock to the target
company’s stockholders, with the acquirer’s common stock
to be valued at its average market price over the period of
ten trading days preceding the closing date”
iii)
Caps, floors and collars; “walk rights” tied to the level of
the acquirer’s stock price
Because the acquirer is issuing stock, the acquirer must comply
with the federal securities laws, either by registering the stock with
the SEC (which may increase the time needed to close the
transaction) or by relying on an exemption from registration
i)
a publicly-held acquirer that contemplates using its stock to
make a series of acquisitions may find it useful to file a
“shelf’ registration statement with the SEC
ii)
among the exemptions from registration that are sometimes
used in this context are the exemption provided by §4(2) of
the Securities Act of 1933 (and the “safe harbor” provided
by Regulation D under the Securities Act of 1933), and the
exemption provided by §3(a)(10) of the Securities Act of
1933
d.
State securities law issues
e.
Restrictions on subsequent transfers of the shares issued by the
acquirer in the acquisition
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