Question 1

On 1 July 20X1 McCarney plc and Donaldson plc each acquired 50% of Armstrong plc. The consideration paid by Donaldson plc consisted of cash of $8 per share and also a 1 for 20 share exchange when the share price of Donaldson plc was $10 each. McCarney plc also paid $8 per share for their interest but did not issue any shares to the original shareholders of Armstrong plc. The ordinary shares of Armstrong plc have one voting right each.

Following the acquisition, Donaldson had the contractual right to appoint 68% of the board of Armstrong with the remaining 32% appointed by McCarney plc.

McCarney had veto rights over any amendments to the articles of incorporation of Armstrong and also over the appointment of the auditors.

McCarney plc and Donaldson plc each appoint one member to Armstrong's senior management team.

It is the senior management team at Donaldson plc who make key decisions regarding the development of Armstrong's new products, its main revenue streams, and the main markets it will operate in.

Required:

Explain if Donaldson should be considered the acquirer of Armstrong plc.