480 16 Key Provisions of the Acquisition Agreement
From the perspective of the acquirer, a share exchange or the issuing of shares
in consideration for assets means that less cash will need to be raised, and the ac-
quirer will not be taking on the contractual commitments to pay interest or to re-
pay capital. On the other hand, the issuing of shares to the vendor or vendors
would change the share ownership structure of the firm, dilute the ownership of
existing shareholders, and be subject to company law constraints.^72
In a share exchange (a share offer in a share deal), a ratio of acquiring company
to target company shares must be established. The ratio can be complicated, if
there is a long delay between the signing of the acquisition agreement and the
passing of the consideration at closing (see below).
Debt. Target shareholders receiving debt instruments that they do not wish to
keep must again incur cost and effort to turn them into cash. Generally, the use of
the acquirer’s debt obligations as a means of payment would change the risk and
return profile of the vendor’s investment in a way that the vendor might not find
acceptable.^73
Where the vendor is skeptical about the future success of the merged business,
the vendor might find debt instruments “safer” than equity capital.^74 On the other
hand, as the payment of interest and capital depends on the success of the merged
business, the vendor should again prefer cash.
Decisive factors. The choice between different forms of consideration can de-
pend on many factors. Some factors can be regarded as decisive.^75
(^72) McLaney E, op cit, pp 381– 382.
(^73) Ibid.
(^74) Ibid.
(^75) See Rudolph B, Ökonomische Gesichtspunkte für die Wahl der Akquisitionswährung
und Akquisitionsfinanzierung. In: Picot A et al (eds), Management von Akquisitionen.
Schäffer-Poeschel, Stuttgart (2000) pp 131–151 at p 140; Schulte C, Corporate Finance.
Die aktuellen Konzepte und Instrumente im Finanzmanagement. Vahlen, München
(2006) p 247.