The Shareholders of 123 Inc

question 37

Multiple Choice

The shareholders of 123 Inc.and 456 Inc.wish to engage in a Business Combination whereby each of the companies would acquire all of the voting shares of the other.On that date,123 Inc had 120,000 shares outstanding with a book value of $2,000,000,while 456 Inc had 100,000 shares outstanding,also with a book value of $2,000,000.On that date the fair market values of 123 Inc.and 456 Inc.were $2,200,000 and $1,500,000 respectively.Assuming that each share entitles the shareholder to one vote,which company (if any) can be identified as the acquirer?

• A)No acquirer can be identified,since the Book values of both companies are the same.
• B)456 Inc.is deemed to be the acquirer since it will own a majority of the voting shares of the combined entity.
• C)123 Inc is deemed to be the acquirer since it holds more voting shares on the date of acquisition.
• D)456 Inc is deemed to be the acquirer since its shares will have a greater market value than those of 123 Inc after the acquisition.