What Are the Pros and Cons of Deferred Payment?
The comprehensive securities payment method refers to a payment method in which the acquirer pays the purchase price to the shareholders of the acquiree using various payment instruments such as cash, stocks, warrants, convertible bonds, and corporate bonds. As El of the capital market becomes more active, the use of any kind of financial payment instrument will inevitably cause some problems. Therefore, the use of a package of payment instruments is currently the more common payment method.
Comprehensive securities payment methods
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- Chinese name
- Comprehensive securities payment methods
- Elaboration
- A M & A payment method
- Types of
- Corporate bonds, etc.
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- The comprehensive securities payment method refers to a payment method in which the acquirer pays the purchase price to the shareholders of the acquiree using various payment instruments such as cash, stocks, warrants, convertible bonds, and corporate bonds. As El of the capital market becomes more active, the use of any kind of financial payment instrument will inevitably cause some problems. Therefore, the use of a package of payment instruments is currently the more common payment method.
- Types of payment methods for integrated securities
- In addition to cash and stocks, the commonly used payment instruments for comprehensive securities payment methods include the following: [1]
- Corporate bonds: Refers to the issuer's newly issued bonds in exchange for the shares of the shareholders of the acquired enterprise. As a method of funding, corporate bonds must meet many conditions, and generally require that they can communicate on the stock exchange or over-the-counter market. Corporate bonds are usually a cheaper source of funding than common stock, and interest paid to its holders is usually tax-exempt. For the buyer, the benefit is that it can be combined with warrants or convertible bonds.
- Warrants: A warrant is a document issued by a listed company that gives the holder a right. That is, the holder has the right to subscribe a specified number of shares, which is the conversion ratio, issued by the company at the specified price, that is, the conversion price, within the validity period. For M & A companies, the benefit of issuing warrants is that dividends can be deferred, which provides the company with an additional equity base. This is because the warrant itself is not a stock, and its holder cannot be regarded as a shareholder of the company, so it cannot enjoy normal shareholders' rights (such as sharing dividends and voting rights), and it has no control over the company's current operating policies. After the purchaser's warrants, the holder obtains a right to exchange shares instead of responsibility. Whether to exercise it is his own decision and is not subject to any restrictions.
- Convertible bonds: Convertible bonds mean that bondholders can convert the bonds into the company's common stock at the agreed price when they are issued. From the perspective of M & A companies, the advantages of using convertible bonds as a payment method are: By issuing convertible bonds, the company can sell bonds at lower interest rates and looser contractual conditions than ordinary stocks; convertible bonds provide a A way to sell stocks at a higher price than current prices. Convertible bonds are also particularly useful when a business is developing a new product or a new business, as the additional profits expected from this new product or new business may coincide with the conversion period.
- In addition, the acquiring company may issue non-voting preference shares to pay the price. Although preferred shares enjoy priority in terms of dividends, they will not affect the original shareholders' control over the company.