Inflated share prices and low-interest debts have few parallels, as these are the financial instruments of various origins and consequences. In fact, to apply the inflated share price as an instrument of acquisition, the CEO team will need to analyze the latest dynamics of prices and study the forecast for the nearest price dynamics.
As for low-interest debt as the acquisition tool, it should be emphasized that the company often subjects it to a particular financial danger, as there is a strong necessity to analyze the market situation, associated with the matters of financial performance in the business sphere.
Considering the parallels of these tools, it should be stated that these are closely linked with the matters of debt security and the stability of the company’s position on a share market. Thus, these tools may be analyzed on the instance of the Vodafone and Mannesmann takeover. It is stated that Vodafone preferred to use the inflated share prices as an instrument of acquisition. The reason for this financial operation was closely associated with the stable growth of the share prices at Mannesmann. Additionally, Mannesmann accounted for about 12 percent in the year 1999 and its outperformance made a huge impact on the growth of the Corporation over the years. As with the leading Corporations in telecommunications, the market value of Mannesmann shares and equity reflected its price-earnings, which was quite similar to Vodafone’s share per earning.
The parallels are pointing at the possibility of bankruptcy if applied improperly. Thus, debt security should be considered properly for both these tools, and distressed investors will have to convert their stakes into equity ownership capital structure. In the light of this statement, the low-interest debts, as well as inflated share price acquisition tools violate the fulcrum security principles of the companies and endanger the stability of the capital structure.
Considering the principles of mergers in Germany, low-interest debts, as well as inflated share prices are more suitable for friendly merger negotiations, which are preferred more in comparison with public tender offers and hostile bids.
On the other hand, the parallels of these tools are associated with the German model of the financial market of acquisitions and mergers. Hence, the supervisory boards of the companies are interested in the further successful development of the company, hence, the inflated share prices, as well as debts will not be used as the tools of company elimination, and however, they are used for weakening the company’s positions to lower the merger costs. Share market valuations, as well as dividends, become lower; hence, the CEO of a company becomes less reluctant for merging offers. Finally, ownership becomes concentrated not only on financial issues of the company’s activity, and implements the total control over the company’s activity, thus, improving its financial position.
Finally, the parallels of these tools are closely associated with the origins of the company, and the capital structure which is required for its effective activity. If the company is equity-financed, the inflated share prices will not be regarded as an effective acquisition tool. The same is on the matters of low-interest debt in debt-financed companies. Consequently, the parallels and the application of these tools should be analyzed properly before undertaking merger or acquisition actions.