Why might shareholders of an acquiring firm prefer to finance mergers with stock rather than with cash?
A) Stock financing is always less costly due to tax consequences.
B) EPS fall when mergers are financed with cash.
C) Target-firm shareholders will bear part of the cost if merger benefits were overestimated.
D) All merger gains go to the acquirer when financed with stock.

Question

Quizplus · Accepted Answer

Shareholders of an acquiring firm may prefer to finance mergers with stock rather than cash because if the merger benefits were overestimated, the target-firm shareholders will bear part of the cost. This protects the acquirer's shareholders from bearing the full cost of a failed merger.

Why Might Shareholders of an Acquiring Firm Prefer to Finance