Answer to Question #254827 in Economics for hajji

Question

What was the reason for an all-cash transaction, and what are the disadvantages of this form of consideration (as opposed to using common shares as consideration)? What are the principal risks and benefits of this transaction for 3G and Berkshire Hathaway?

Answer 1

The choice of the most optimal payment method for the transaction is one of the key points in a merger or acquisition of companies, as it helps to smooth out the contradictions of interests of the parties to the transaction and influences the final decision of both the buying company and the target company. The choice of payment method largely determines how successful and profitable the merged company will be after the deal is completed. The development and globalization of world financial markets have led to the fact that, both from a theoretical point of view and in practice, there are many ways in which a buying company can finance the purchase of the desired target company. The main payment methods for transactions are:

- payment in cash;

- payment in ordinary shares or exchange of shares;

- payment in debt securities (bonds with a fixed or floating interest rate) or preferred shares of the buying company;

- payment with convertible securities (bonds or preference shares convertible into ordinary shares of the buying company at a set rate after a certain period of time);

- payment method "according to opportunities", taking into account real income (payments over a certain period of time, the amount of which depends on the financial results of the company).