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ACCA Strategic Professional · Advanced Financial Management · Financing acquisitions and mergers

Zeta plc is acquiring Target Ltd and offers Target's shareholders a cash alternative funded by a vendor placing. Which statement best describes how a vendor placing works?

In a vendor placing, the acquirer issues new shares as consideration to the target's shareholders, and placing agents sell those shares to institutional investors. The target's shareholders end up with cash, while the acquirer has effectively financed the deal with new equity without a rights issue.

  1. AZeta issues new shares to Target's shareholders, and placing agents sell those shares to institutional investors so Target's shareholders receive cashCorrect
  2. BZeta issues new shares directly to its own existing shareholders in proportion to their holdings at a discount
  3. CZeta issues convertible bonds to Target's shareholders that are redeemable for cash after five years
  4. DZeta buys back its own shares from the market to pay Target's shareholders in cash

Explanation

In a vendor placing the acquirer issues shares as consideration to the target's shareholders, and these shares are immediately placed with institutions on their behalf. The target's shareholders therefore receive cash, while the acquirer effectively raises equity. A rights issue is the offer to existing shareholders, so the second option describes the wrong mechanism.

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