JC Penney & Kohl's
The Cost
The first thing when it comes to determining how JC Penney could manage to pay for Kohl's is to think about how much it would cost to do so, and where JC Penney stands in relation to that. As has been noted previously, JCP cannot actually afford to buy Kohl's. Kohl's has a market capitalization of $6.9 billion (MSN Moneycentral, 2017). Penney has a market cap of $2.05 billion, just one-third (MSN Moneycentral, 2017.
Kohl's would not be purchased at its market cap, however. When acquiring another company on the open market, the acquiring company must pay an acquisition premium. The reasoning behind this is fairly simply. The current value of Kohl's stock is believed to be the efficient value -- that this is fair value based on everything that is known today about Kohl's. If the market is even remotely efficient, then a shareholder would just sell in the market. But if shareholders know that someone wants to take over the company, they will demand a premium for that, knowing that the buyer is motivated. Thus, acquiring firms have to offer a premium over the current market value of the shares. There are different factors that go into this -- like whether the target company has other suitors -- but the general rule is that the acquiring company must pay an acquisition premium, and this will run anywhere from 20% or more (Investopedia, 2017). Knowing that, JC Penney is more likely to have to pay Kohl's shareholders somewhere in the range of $8.3 billion, just as a starting point. Kohl's shareholders, knowing that Penney has struggled with questionable management, might demand more, because they may be skeptical about having their shares converted into Penney shares. But the $8.3 billion figure is a starting point.
Methods of Payment
There are typically three ways that a takeover is structured. Cash, shares, or both. The benefits of a cash payment are that...
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