8. 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 state regulations to which the acquiring firm will be subjected.

Is this statement true or false?

True

False

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 statements are correct.

Diagram: Merger Tax Effects

Statements Check all that apply.

The acquiring firm continues to depreciate acquired assets at the old rate.

Goodwill is created for tax purposes.

Target shareholders receive shares of stock in the acquiring firm and pay no taxes at the time of the merger.

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