by RUDOLPH J. ENGLERT Partner, New York Office
Presented before the Thirteenth Annual West Kentucky Conference on Accounting, Kentucky Dam—May 1964
NOT BEING an attorney, I cannot tell you how to draft a buy and sell agreement, our topic for discussion today. However I should like to discuss with you some of the problems and decisions that must be made before a buy and sell deal can be consummated. Let us start at the point where two parties have just agreed to buy and sell and disregard the numerous reasons why some companies wish to sell and why others are looking for companies to acquire.
The first problem to be solved is the determination of the sales price—if a cash transaction, the amount of cash; if a stock transaction, the exchange ratio. Usually financial analysts are engaged to study the companies and submit reports suggesting the price or exchange ratio. Among the factors they consider are:
• Market values
• Book values
• Growth pattern.
Management reviews the reports after they are received and considers
various other factors such as:
• Caliber of the management of the company being acquired
• Advantages of the services of an established sales or research organization
• Peculiar features if any of the company being acquired.
After all factors have been considered and management has arrived at its conclusions, the final price or exchange ratio is determined by negotiation between the managements of the two companies.
FORM OF DEAL
The next problem to be resolved is the form of the deal to be consummated.
It may be in the form of:
• cash or stock