WALL STREET SMARTS, THE BLOG, IS NOW WALL STREET SMARTS, THE BOOK. FULLY EDITED AND REVISED WITH NEW MATERIAL ON AMAZON
We meet with Bob and Mary to discuss the possibility of Best Blogs Ever, Inc. (BBE) merging with Blogging Topics, Inc. (BTI). When Venture Funds, Inc. (VFI) made its investment in BBE several years ago, the final agreement resulted in VFI using some of its money to purchase a minority interest in BBE common stock and investing the rest in BBE's newly authorized issue of cumulative, convertible preferred stock (par value of $100 per share) with a 2% dividend. Here is a link to the March 14, 2011 blog on VFI's investment.
Our financial consultant, Mary Jo, lays out three possibilities for a merger. BBE could pay Bob and Mary Pat cash for their stock in BTI. The downside of such a sale for Bob and Mary Pat is that if they receive cash, they will have to pay taxes on their gain, i.e., the difference between their tax basis (the cash they paid for their stock) and the sale price for those shares. Since this results in less money for their retirement, Bob and Mary Pat are not very interested in this sort of merger. The second type of merger would involve a swap of BTI shares for BBE shares (common or preferred). If structured correctly, they would receive shares in BBE and yet have no taxes to pay. A third option would be for them to receive a combination of stock and cash for their BTI shares. Here is a link to some of the US tax rules affecting mergers.
When we negotiated with VFI, the original shareholders were adamant that they maintain voting control of the company. Consequently, in addition to its preferred shares, VFI bought 400 shares of common stock. At that time, the original shareholders owned a majority of the common stock, 500 shares. These holdings had become, after the 10 for 1 stock split, 4,000 shares and 5,000 shares respectively. Faced with passing the dividend on the common shares due to low cash reserves the year after the VFI investment, the Board had declared a 3 for 2 stock dividend in lieu of a cash dividend. This had increased the stock holdings of VFI to 6,000 shares. The original owners now own 7,500 shares. BBE still has 27,500 shares of authorized but unissued shares of common stock. Our president, Alice, suggested that some of these shares could be swapped for the BTI shares owned by Bob and Mary Pat.
They agreed with this idea in principle, but said they needed to consult with their legal and financial advisers about the details. We need to discuss this with our shareholders and advisers as well. Mary Pat brought up their concern about how a merger might affect their employees. Alice said that we had no intention of taking over the posting of their existing blogs. We would hire all of their bloggers. Our staff would take over all of the adminstrative, "back office" issues for BTI, which had been handled entirely by Mary Pat. The purpose of this merger is to grow BBE by adding blogs to its internet offerings, not to reduce administrative costs. We assured her that all BTI bloggers would continue posting as usual.
Both sides agree to another meeting next week, which will give everyone time to consider the ramifications of a merger of BBE and BTI.
Comments are always welcome.
We meet with Bob and Mary to discuss the possibility of Best Blogs Ever, Inc. (BBE) merging with Blogging Topics, Inc. (BTI). When Venture Funds, Inc. (VFI) made its investment in BBE several years ago, the final agreement resulted in VFI using some of its money to purchase a minority interest in BBE common stock and investing the rest in BBE's newly authorized issue of cumulative, convertible preferred stock (par value of $100 per share) with a 2% dividend. Here is a link to the March 14, 2011 blog on VFI's investment.
Our financial consultant, Mary Jo, lays out three possibilities for a merger. BBE could pay Bob and Mary Pat cash for their stock in BTI. The downside of such a sale for Bob and Mary Pat is that if they receive cash, they will have to pay taxes on their gain, i.e., the difference between their tax basis (the cash they paid for their stock) and the sale price for those shares. Since this results in less money for their retirement, Bob and Mary Pat are not very interested in this sort of merger. The second type of merger would involve a swap of BTI shares for BBE shares (common or preferred). If structured correctly, they would receive shares in BBE and yet have no taxes to pay. A third option would be for them to receive a combination of stock and cash for their BTI shares. Here is a link to some of the US tax rules affecting mergers.
When we negotiated with VFI, the original shareholders were adamant that they maintain voting control of the company. Consequently, in addition to its preferred shares, VFI bought 400 shares of common stock. At that time, the original shareholders owned a majority of the common stock, 500 shares. These holdings had become, after the 10 for 1 stock split, 4,000 shares and 5,000 shares respectively. Faced with passing the dividend on the common shares due to low cash reserves the year after the VFI investment, the Board had declared a 3 for 2 stock dividend in lieu of a cash dividend. This had increased the stock holdings of VFI to 6,000 shares. The original owners now own 7,500 shares. BBE still has 27,500 shares of authorized but unissued shares of common stock. Our president, Alice, suggested that some of these shares could be swapped for the BTI shares owned by Bob and Mary Pat.
They agreed with this idea in principle, but said they needed to consult with their legal and financial advisers about the details. We need to discuss this with our shareholders and advisers as well. Mary Pat brought up their concern about how a merger might affect their employees. Alice said that we had no intention of taking over the posting of their existing blogs. We would hire all of their bloggers. Our staff would take over all of the adminstrative, "back office" issues for BTI, which had been handled entirely by Mary Pat. The purpose of this merger is to grow BBE by adding blogs to its internet offerings, not to reduce administrative costs. We assured her that all BTI bloggers would continue posting as usual.
Both sides agree to another meeting next week, which will give everyone time to consider the ramifications of a merger of BBE and BTI.
Comments are always welcome.
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