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Originally posted by soup sandwich
Can anyone explain to me why companies often will acquire 19.9% of another business's shares? What happens when the 20% threshhold is crossed?
Please type very slowly when you answer as I recieved only a C+ in Business Law.
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Accounting. While I think facts and circumstances are supposed to come in to play (so 19.9% plus appointment of a bunch of board members can be a problem), there are three ways to account for a deal: (i) mark to market; (ii) flow through of a pct. (e.g., 50% of the portfolio company's bottom line flows through to the investor); and (iii) flow through of all, with a portion then backed out (this is accounting for subsidiaries). Some stuff is above and below the line, but if you're going to get that sophisticated, hire an accountant.
Some of this may be obsolete - these rules have been changing, and I'm not an accountant. Also, I live with private companies. For public companies, someone else can weigh in.
