Question 3 15 points Differentiate between each of the follo

Question 3. (15 points) Differentiate between each of the following and provide a specific example of each to illustrate your answers. a. A golden parachute and a poison pill

b. A friendly merger and a hostile merger.

c. A vertical merger and a horizontal merger.

d. An acquiring company and a target company

e. Purchase accounting and pooling of interest accounting

Solution

golden parachute and a poison pill:

This is more or less a corporate war.

This is a business thriller when two competitive computer companies undergo a hostile takeover.

This started with Francis Taylor , who founded one of the first computer autocrate companies became successful leader, suddenly had to face losses due to demand increasing for smaller computers.

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Both friendly and hostile mergers are mergers of two companies where one company loses its individual identity and shares are converted into shares of other companies.

But in friendly merger this takes place with the approval of directors and shareholders of both corporations.

In this type, both directors and shareholders can take advantage of economies of scale and eliminate redundant divisors.

In hosile merger the merger is opposed by the target corporation\'s directors. This has two subdivisions, tender and Proxy fight.

In tender hostile merger, the shareholders are compensated cash for shares.

With proxy authority, the acquiring corporation can take effective control of the target corporation by replacing its directors and officers, approving a merger resolution or approving the issuance of new shares.

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Vertical and horizontal merger:

Horizontal merger is one that takes place between companies in the same industry.

A vertical merger is between two companies producing different goods or services but all for one finished product.

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An acquiring company and a target company

The target company is one whose survival is at stake and after taken over by an acquiring company its survival is assured.

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Purchase method is generally higher than the pooling method as in pooling method no goodwill asset is created

Preacquisition income statements are not combined in purchase method but combined in pooling method.

So pooling methods are more accurate than purchase method.

Purchase accounting and pooling of interest accounting