There are various methods of payment in case of mergers and amalgamations. Methods of payment in Mergers and Amalgamations are presented for your understanding in below section, shortly. I hope this will enhance your ability to realize the issue.
Payment in case of mergers and amalgamations:
(i) Cash: Wherever one corporation purchases the equity shares or assets of another corporation for cash the shareholders of the second corporation cease to have any interest in the combined business. The disadvantage in case of cash payment is that they may be liable to capital gains tax.
(ii) Loan Stock: In case of payment by loan stock, the shareholders of the selling corporation exchange their equity investment for a fixed interest investment in the other corporation. The advantage of loan stock is that any liability to capital gains tax will be deferred until the disposal of the loan stock. Additionally, interest on the loan stock
is deductible in the hands of the corporation for tax purpose.
(iii) Ordinary Shares: In case of payment by ordinary shares, the shareholder merely exchanges his shares in one corporation for shares in another corporation. The advantage of payment by ordinary shares is that the shareholders of the selling corporation will still have an interest in the combined business and will not be subject to capital gains tax on the exchange. From the standpoint of the combined corporations a share exchange does not affect their liquidity.
(iv) Convertible Loan Stock: The shareholders in one corporation exchange their shares for convertible
loan stock in the other corporation. The selling corporation‘s shareholder exchanges an equity investment for a
fixed interest security which is convertible into an equity investment at some time in the future if he
Payment in case of mergers and amalgamations generally happens in these four above methods. There might have more other methods as agreed by both companies, considering tax and other regulatory factors.