Which of the following would not be acquired from a target company in the event of a takeover?
A Target company share price premium
B Target company equity
C Target company asset
D Target company liabilities
The correct answer and explanation is:
The correct answer is A. Target company share price premium.
In the event of a takeover, the acquirer typically seeks to acquire several components of the target company, but the share price premium is not one of the assets or liabilities that would be directly acquired. Here’s a breakdown of the options:
- Target company equity (B): This is a key component in the takeover process. The acquirer often purchases shares in the target company, which means they acquire the equity (ownership) in that company. The buyer might pay a premium over the market price for those shares to make the offer attractive to the shareholders of the target company.
- Target company assets (C): In most takeovers, the acquiring company buys the assets of the target company. These could include physical assets like property, equipment, and inventory, as well as intangible assets like intellectual property or goodwill. The assets are a significant part of what the acquirer is looking to gain.
- Target company liabilities (D): Liabilities also typically transfer in a takeover, particularly in an asset purchase. The acquiring company often assumes responsibility for the target company’s debts, contractual obligations, and other liabilities. This is especially true in mergers or when the acquisition is structured as a complete takeover rather than just a purchase of equity.
However, the target company’s share price premium refers to the extra amount that the acquirer offers above the current market price of the target company’s shares in order to make the offer attractive to shareholders. This premium is not something that is acquired by the buyer; it is a payment to the target company’s shareholders to encourage them to accept the offer. It is part of the financial structure of the deal, but not an asset or liability the acquirer would take on directly.
Thus, the share price premium is an expense incurred by the acquirer, but it is not an asset or liability that transfers as part of the takeover.