🏦LTB
← Series 79: M&A, Tender Offers & Restructuring
Series 79 practice questionmediumMerger Consideration

Which of the following is a primary reason an acquirer might prefer to use stock rather than cash as merger consideration?

  1. AStock consideration always results in a lower purchase price
  2. BStock consideration eliminates the need for shareholder approval
  3. CStock consideration preserves the acquirer's cash and borrowing capacity✓ Correct answer
  4. DStock consideration avoids all regulatory review requirements
Explanation

Why C — Stock consideration preserves the acquirer's cash and borrowing capacity

Using stock as consideration preserves the acquirer's cash reserves and debt capacity, which is particularly advantageous when the acquirer has limited liquidity or wants to maintain financial flexibility for future investments. Stock consideration also allows the transaction to potentially qualify as a tax-free reorganization. However, it dilutes existing shareholders and may require registration of the new shares with the SEC.

Turn it into reps

Reading one answer is not the same as being ready

Lucky the Banker is a free practice app with 477+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.

Practice Series 79 freeSeries 79 exam guide
Related M&A, Tender Offers & Restructuring questions