Replies to post #171723 on Biotech Values

[biotech_researcher]

zipjet- If I had my way it would be a breach of fiduciary duty to do a cash deal.

I would expect your statement above would change if we were in a severe bear market during an announced company buyout.. at least I know that I would want an all cash deal :^)

[Rocky3]

The GENT buyout for cash is recent example of management not protecting the interests of their US shareholders.

(1) How much of the company is owned by US shareholders? Surely that should affect the decision.

(2) I think that it probably is not possible in this case. All JAZZ US shareholders had a deemed sale when it merged into an Irish company a couple years ago even though the shareholding did not change (same thing happened to Eaton last year). I think non-recognition is available for only US corps. Not worth looking up for me though.

[biomaven0]

>>management selling a company should do stock exchanges and not cash sales

Here's a (hard) quiz for you or anyone else:

From the perspective of the acquiring company, why is a cash deal almost always economically cheaper than a stock deal at the same price?

(Ignore any tax implications for the acquiring company - these can cut both ways because of step-up in basis, asset sale vs. tax-free re-org, and myriad other possible tax or accounting complications).

Peter

[mouton29]

<<The buying company can always buy back stock if they want the effect of a cash deal.>>

Not completely true. One of the requirements of a tax-free reorganization is "continuity of interest". this is a concept created by case law but now enshrined in the regulations. Essentially, a sufficient quantum of the consideration given to the target shareholders must be stock, the precise minimum is not clear but it is thought to be around 40%. For this purpose, the fact that target shareholders sell their stock after a merger does not count but under applicable treasury regulations, but redemptions by the acquiring company or a related person are taken into account if undertaken "in connection with a potential reorganization." See 1.368-1(e) at http://www.law.cornell.edu/cfr/text/26/1.368-1