4. Taxes and takeover bids

In a merger, the acquiring firm can either pay in cash or make a stock offer. The acquirer can purchase the target firms assets or buy shares directly from the target firms shareholders.

Consider the following statement about the impact of the takeover bid structure:

The structure of the takeover bid affects the types of federal and province regulations to which the acquiring firm will be subjected.

Is this statement true or false?

False

True

A takeover bid can be structured in different ways, making it either a taxable or a nontaxable offer. Based on your understanding of the impact of takeover bids on the target firm and the acquiring firm, review the diagram below and check which of the following statements are correct.

Diagram: Merger Tax Effects

A. Statements Check all that apply.

-Target shareholders tender their shares, receive cash, and pay personal taxes on realized capital gain.

-The acquiring firm adds acquired assets to its books at their appraised values.

-The acquiring firm creates goodwill that can be depreciated for tax purposes.

-The target firm incurs immediate tax liability for the amount of gain over the book value.

Diagram: Merger Tax Effects Payment is made mostly in cash by purchasing the target firm's stock. The transaction is taxable, and transactions are recorded at their appraised values