Essay About Asset Purchase And Stock Purchasedisadvantages

Yangzhou Coal Mining
Yangzhou Coal Mining CompanyIn general, how can synergies be created from international acquisitions? What kinds of synergies did Yanzhou hope to achieve through acquisitions in Australia?Producing more revenue than the two businesses could have been able to independentlyCreate shareholder valueStreamline redundant processesSignificant cost reductionTake advantage of specialisation and resourcesChina’s strip coal mining reserves only accounted for 7.5% of the total resources, where as in Australia the proportion is 35%. China’s coal mines also have a high content of gas with more than 40% of coal mines being rich in gas. Yangzhou wanted to apply their Longwall Top Coal Caving (LTCC) mining technology and to provide relevant equipment for Austar Coal Mine.In general, what are the rationales for acquiring assets versus acquiring equity? Which mode did Yanzhou favour when expanding its Australian operations and why?Advantages of choosing asset purchase over stock purchaseDisadvantages of choosing asset purchase over stock purchaseThe buyer is able to specify the liabilities it is willing to assume in an asset acquisitions; in a stock purchase the buyer is purchasing stock that may have unknown liabilities.The selling company needs to re-title the assets in the name of the buyer.Buy purchasing assets, the buyer can avoid the problem of minority shareholders who refuse to sell their shares.The buyer can obtain the selling company’s permits and licenses without the consent of the other party.If the selling company doesn’t have many shareholders, it is typically less complicated.Stocks could avoid some taxes that apply in the event of an asset transaction.Yanzhou favoured a stock purchase since the main objective of the M&A was to be able to utilise Australia’s mining resources. By using a stock purchase, Yanzhou was able to access Felix’s mining permits and licenses, rather than having to obtain them through re-titling. Since the shares were provided tax-free, the tax advantages associated with a stock purchase would have also helped.Whether you’re buying shares or assets, you’re likely to be paying a control price. Buying assets is a cleaner transaction; it’s a targeted acquisition. If you purchase a portfolio, you also inherit the debts. Why was Felix Resources an attractive target?Felix Resources was experiencing a decline in market value due to coal price offsets, caused by the Global Financial Crisis. There was much more synergy to be had through the M&A as China’s domestic mines were closed due to safety and environmental reasons. It was also a smaller size, making it an attractive target to larger resources companies.