Background Information Hos And Tykes Agreements, Analysis And Recommendation
988 Words Oct 9th, 2016 4 Pages
Hesson Office Supplies, Inc. HOS is a distributor of office equipment, furniture, and supplies. HOS has wholly owned subsidiary, Belknap Equipment Company, a manufacturer of office equipment. HOS has been discussing with Tykes Office Equipment the possibility of forming a new business entity. Tykes also have a wholly owned subsidiary, Reddington Office Furniture, a manufacturer of office furniture and fixtures.
The cases are concerned with actual companies HOS and Tykes have tentatively agreed that they will exchange their entire interest in their wholly owned subsidiaries, Belknap Equipment Company and Reddington office furniture, for 50% interest in a newly formed corporation. Thus, the new corporation would receive the two subsidiaries and issue 50 % of its stock to HOS and the other 50% to Tykes. The fair value of the net asset of each subsidiary exceeds its book value and relative net book value and fair value of the two subsidiaries are not proportional. However, through negotiation HOS and Tykes believe that their contributions to the newly formed corporation would be equal in value in spite of this disproportionate relationship.
The fair value of a 50% interest in the new corporation would exceed the carrying value of HOS’s investment in Belknap.
A business combination also referred to as a merger, acquisition, or takeover occurs when one…