What is Capital structure after merger and consolidation?
I share a short article about capital structure before and after merger and consolidation. Which can be understood easily for all these activities. In the case of a merger, the acquiring company and in the case of consolidation several new companies hold the assets and liabilities of the merged companies. And it is issued new shares in exchange for old ones.
Due to which the new structure is decided to affect the capital structure. So that the capital structure must be properly balanced so that complications can be avoided at a later stage. And at the same time, a major significant change can also occur in debt-equity balance. Whereas the acquiring company needs cash to pay.
When he does not have enough cash, he has to provide new securities for exchange purposes. In which case, the balance of debt and equity changes. But chances are, equity can be increased more than debt. Mergers and consolidations result in a combination of advantages for all related companies. Which in turn increases the profitability and reduces the risks and uncertainties.
If it comes to share, then it affects the earnings per share. Investors who are compatible with the securities of the company. So it also has a positive effect on anticipation of dividend announcements in the future.
If the merging companies had different payment policies, the shareholders of a company would also experience a change in the dividend rate. This would be a favorable overall effect on earnings, because of the increased size of the business, many economies experience in cost and marketing. Which increases the profitability of the company.
But this capital structure must be adjusted according to the current needs and requirements. This can cause the concern to sell its unrelated business, and consolidate the rest of its businesses into a balanced portfolio.
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