632598256894

Lean‟s equity has increased by the $18 million of new shares it issued to pay for the deal.
Entire volumes have been written on the accounting treatment of acquisitions, and this is a very
complex and dynamic issue. Because of this, it is important to get timely, expert advice on these issues
from competent professionals.
Tax Issues
Taxes were discussed briefly in the paragraph comparing cash and stock deals. In a tax-free
transaction, the acquired assets are maintained at their historical levels and target firm shareholders
don‟t pay taxes until they sell the shares received in the transaction. To qualify as a tax-free deal, there
must be a valid business purpose for the acquisition and the bidder must continue to operate the
acquired business. In a taxable transaction, the assets and liabilities acquired are marked up to reflect
current market values, and target firm shareholders are liable for capital gain taxes on the shares they
sell.
In most cases, selling shareholders would prefer a tax-free deal. In the study by Weston and
Johnson (1999), 65% of the transactions were nontaxable. However, there are situations where a
taxable transaction may be preferred. If the target has few shareholders with other tax losses, their gain
on the deal can be used to offset these losses. A taxable deal might also be optimal if the tax savings
from the additional depreciation and amortization outweigh the capital gain taxes. In this case, the
savings could be split between the target and bidder shareholders (at the expense of the government).
Again, it is important to get current, expert advice from knowledgeable tax accountants when
structuring any transaction.
Antitrust Concerns
Regulators around the world routinely review M&A transactions and have the power to disallow deals
if they feel they are anticompetitive or will give the merged firm too much market power. More likely
than an outright rejection are provisions that require the deal‟s participants to modify their strategic
plan or to divest certain assets. When the Federal Trade Commission (FTC) approved the 2006 $27
billion acquisition of Guidant Corporation by Boston Scientific, it required the merged firm to divest