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Company B (much larger) merges with Company A by issuing 10 shares of A for every 1 share of B, such that ex-B shareholders end up holding 70% of A. Management of B runs the combined entity. Identify the accounting acquirer and the legal acquirer.
ACompany A is both the legal and the accounting acquirer
BCompany A is the accounting acquirer; Company B is the legal acquirer
CCompany B is both the legal and the accounting acquirer
DCompany A is the legal acquirer; Company B is the accounting acquirer (reverse acquisition)
Answer & Solution
Correct answer: D. Company A is the legal acquirer; Company B is the accounting acquirer (reverse acquisition)
A issues shares so it is the legal acquirer (and legal acquiree of B's shareholders). But ex-B shareholders hold 70% and B's management dominates — so B is the accounting acquirer (reverse acquisition). Net assets of the accounting acquiree (A) get fair-valued.
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