Debt free cash free versus shares consideration in the main S&P/ SPA sale agreement
Training course provider: You’ve got a slide, slide nine in your packs which talks about these reasons and we’ve just talked through that. How does that, this bullet point here is worth having a look at: consideration in the legal agreement. So what you’re faced with doing is translating the offer into the shares value here [points to RHS].
You’re faced with doing that. And I suppose the question is: “Why, why do we have the lower number in a legal agreement?” Well there’s a couple of reasons why we might end up focussing on that lower number.
What we were hearing at the start was that all the way through the process before it gets to the legal guys we’re focussing on this high valuation number. We’ve just heard some reasons why, why we focus on that. But suddenly when we come into the documentation we’re focussing on the small number. Is there any good reason for that?
The role of transaction taxes such as stamp duty and capital gains tax
Well, certainly in the UK we have a transaction tax which is calculated on the size of the deal so suddenly the incentive switches from everybody wanting to focus on a big deal to everybody wanting to focus on the smallest possible deal to get the transaction tax down as low as possible.
Do you have transaction tax here? And you have capital gains tax as well, and that’s another good reason. The capital gain - we want the smallest number possible - the tax lawyers will be advising us: the smaller the better because that lowers the capital gain. So there are two reasons there why we go for that small number in the documentation. Perhaps a transaction tax or capital gains tax.
The two reconcile anyway – we’ve seen that. We can go from left to right or right to left.
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You’re faced with doing that. And I suppose the question is: “Why, why do we have the lower number in a legal agreement?” Well there’s a couple of reasons why we might end up focussing on that lower number.
What we were hearing at the start was that all the way through the process before it gets to the legal guys we’re focussing on this high valuation number. We’ve just heard some reasons why, why we focus on that. But suddenly when we come into the documentation we’re focussing on the small number. Is there any good reason for that?
The two reconcile anyway – we’ve seen that. We can go from left to right or right to left.
