Ski Ltd. has 500,000 shares outstanding. On July 1, 20X7, Ski purchased all of the outstanding shares of Snow Ltd. The consideration paid by Ski was in the form of 500,000 shares, valued at $20 per share, which was premium of 10% over the market value prior to the announcement. It has been decided that the CEO of the combined company will come from Ski, but the CFO and the COO will come from Snow. The chairman of the board of directors will come from Snow. The board will have six other directors, three from Ski and three from Snow.
Required:
Define what the acquirer is in a business combination. How would you identify the acquirer in the above transaction?

An acquirer in a business combination is the corporation whose shareholders control the combined entity. In this case, after the combination, the ownership of Ski is as follows: The former shareholders of Ski own 500,000 shares and the former shareholders of Snow also own 500,000. As a result, voting control is evenly split at 50% for each group. No one group has the voting control of the new combined entity. It is necessary to examine other factors to determine who the acquirer is. The other factors include:
• Representation on the board-In this case, the chairman is from Snow, and there is equal representation from Ski and Snow for the remaining six directors
• Management team-The management team is made up of the CEO from Ski, but the CFO and the COO both come from Snow.
Given the above analysis of factors, it would appear that Snow might have control since Snow has majority on the board of directors, including the chairman, and also has two of the three managers on the senior management team. Consequently, Snow would be the acquirer in this combination.
Note: This answer will be a judgment call, and students may argue for Ski to have majority, since the CEO is from Ski.