[Rumni]

Assume you are a common stockholder of XYZ Widgets Corporation, a public corporation. XYZ manufactures widgets in the Midwest, and markets them regionally through a three state distributor network. ABC Company makes a product that is complementary to XYZ's widgets at its factory 300 miles from where XYZ is located. ABC is owned and operated by John and Jane Doe, who are approaching the age at which they would like to slow down, and enjoy the fruits of their many years of building ABC. At the annual regional trade show Mr. Doe approaches the president of XYZ and suggests that XYZ acquire ABC. The acquisition seems initially to make good business sense, so the president says that he will have his CFO contact him to get the financial details on the operating history of ABC.

You are that CFO and have received the financial information you requested from Mr. Doe. After analyzing the financials, and preparing projections for a combined operation, you intend to recommend to the president that XYZ proceed to negotiate the acquisition of ABC. XYZ's operating budget does not provide for the use of cash for an acquisition this year, and Mr. Doe is amenable to "creative financing". Assume further that the acquisition price, if paid in cash, has been agreed upon, and that price equals 40% of the net worth of XYZ.

What financing instrument would you recommend be used to acquire ABC, and what is your justification for its use?

[CliffARobinson]

We do not complete homework for students, however, we do try to point them in the right direction in order to perform the work themselves. I found a great primer on some creative financing ideas for a company to purchase another company.