From the viewpoint of the seller or target company shareholder, transactions may be tax-free or entirely or partially taxable.
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Taxes are an important consideration in almost any transaction, and they are often the primary motivation for an acquisition.
Investors in highly leveraged transactions who are primarily focused on relatively short-to-intermediate term financial returns are often called financial buyers.
The high premiums paid to LBO target shareholders reflect the tax benefits associated with the high leverage of such transactions and the improved operating efficiency following the completion of the buyout resulting from management incentive plans and the discipline imposed by the need to repay debt.
Premiums paid to LBO target firm shareholders often exceed 40%.