Question # 1
NOTES:
Difference between buying the shares of a target and buying the assets of the target
Buying the assets of the target:
- Not taking on any liabilities
- Not taking on the company’s debts
If you are buying shares in a company you are also buying the liabilities and debts of the company
If it’s an outright purchase you will also take over their tax position. Tax losses are disadvantageous as it’s brings down the taxable profits of your core company.
Other differences between buying a share/Assets
- It’s easy to transfer ownership when you buy outright purchase of a company
- Transferring a company’s assets is difficult especially if there is a loan attached to it
- When you buy a company all the employees are attached to it, whereas If you buy an asset of the company you cant
- The vendor/target pays capital gains tax on the sale of their company
- If you buy the whole company it goes to the target shareholders, unlike buying the assets that goes to the company.
- The purchaser of the target assets can cherry pick what is attractive to them and leaves behind what they don’t want, in contrast to buying the whole company they don’t really have the choice to cherry pick.
- The company pays the capital gains tax that is selling the assets, whereas if you buy the whole company it is the shareholders that pays the tax.
- If you buy an asset of a company trading relationship are not guaranteed to transfer, whereas if you buy the whole company then the trading relationship is very likely to transfer
Question # 2
NOTES:
The rationales behind apple’s acquisition of Beats Electronics
Apple’s $3bn (including $2.6 billion cash up front and approximately $400 million in stock that will vest over time) acquisition of beats electronics in May 2014 was very and it’s still controversial and questionable, as it’s been argued that Apple has over paid beats electronics which was valued by HTC only a $1bn a year earlier.
There haven’t been any substantial rationale behind the acquisition, however below are the possible rationales why Apple acquired Beats electronics at that price:
- For the premium headphone market which is worth about $1bn
- Audio technology- other than the headsets, the audio is used in computers and other devices. Although Mac already have a good quality speakers, the audio on Mac computers has always been limited with no system level equalizer for example as at the time of the acquisition.
- There were good reviews on the beats streaming services, so Apple will be able to roll its services into improving its own music streaming services.
- Boosting Apple’s cool : re-establishment of some of its lost image with certain demographics. Beats brand being associated with its rap founder Dr Dre and other music stars has achieved a level of popularity that will be good for Apple.
- Wearables- at the time it was possible that Apple were thinking about smart headphones hence why the Beats were attractive to them
