A BEECHMONT CREST ONLINE GUIDE
MERGERS & ACQUISITIONS
Merger Financing
Mergers may be financed by:
Cash
Securities
A combination of cash and securities
If a company acquires another company with securities, it usually uses its own stock for the transaction. However, this is not required; securities from other entities may be used. Likewise, either common or preferred stock may be used to finance a merger.
Stock vs. Cash: Which is better?
There is no easy answer. Both have advantages and complications:
Stock transactions typically result in fewer tax liabilities for the acquired firm. In addition, a cash-based acquisition may force the acquiring company to incur debt, which increases the risk associated with the merger.
However, in order for two companies to reach an agreement on a securities-based merger, they have to first reach an agreement regarding the value assigned to the securities involved. This step is often problematic.