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Chapter 5: Q12DQ. (page 648)

What is the purpose(s) of the two-step buyout from the viewpoint of the acquiring company?

Short Answer

Expert verified

To provide strong inducement to stockholders and pay the lower total price by the acquirer if a single offer is made.

Step by step solution

01

Explanation on two-step buyout

A two-step buyout is a purchasing plan in which acquiring company offers a higher price for 51% of the share outstanding, and also offers a second option of the lower price, which will be paid in the future by cash, shares, or bonds.

02

Purpose of two-step buyout

The purpose of a two-step buyout is as follows:

  • It induces stockholders to react to the offer made. If the stockholders do not take immediate action, they will have to accept a lower price.

Acquiring company can pay a lower price compared to a single offer.

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