A BEECHMONT CREST ONLINE GUIDE
MERGERS & ACQUISITIONS
Asset Acquisitions vs. Stock Acquisitions
Most mergers involve the acquisition of one company’s stock by another. But this doesn’t have to be the case. An acquiring company can also choose to purchase only the assets of the target company.
In the case of an asset acquisition, the acquiring firm can elect to purchase only those assets which fulfill a strategic objective (such as plants and/or equipment). The acquiring firm in an asset acquisition isn’t required to buy every single asset.
If a company sells off all of its productive assets to another company, it becomes a corporate shell. It cannot engage in meaningful business activity as it is. The company may purchase new productive assets, or it may choose to go out of business.
If the company chooses to go out of business, it will distribute the cash from the assets sale to shareholders. This is called a cash repurchase tender offer. The company uses the proceeds from the assets sale to buy back its shares from stockholders.
When a company acquires all the stock of another company, it also acquires all of the target company’s debt. There is no “clean slate” for the new owners. (This is called successor liability.)