It has been confirmed this week that Disney's landmark acquisition of Fox's assets is due to complete next week. This acquisition will allow Disney to acquire Fox's film and television studios along with the rights to various franchises including Deadpool and Avatar as part of an asset sale. Disney's ultimate aim is to position itself as a competitor to the likes of Netflix and Amazon Prime who control most of the market for online entertainment streaming services.
While share sales tend to be more popular, there is no right or wrong option when it comes to deciding whether to structure a deal as an asset or share sale. The decision is made on a case by case basis and usually depends on the needs of the business. It can also depend on the industry. Many of our dental practice sales are asset based. We also see more asset sales in manufacturing and construction industries where the buyer may be interested in acquiring only certain elements of the business such as machinery, property or key employees. In the same vein, a buyer may look to acquire via the share purchase route where they are looking to add a similar or complementary business to their group.
I thought now would be a good time to consider the difference between an asset purchase compared to a share purchase and weigh up some of the pros and cons of each:
Assets: An asset purchase allows a buyer to 'cherry pick' the elements that they want while leaving behind the things they don't, such as bad debts or old stock. With a share purchase, you generally end up with the whole business, warts and all.
Contracts: Not all contracts may be readily assignable. Whilst this does not apply in a share sale as the parties to the contracts will remain the same (except where there is a change of control clause), this can cause an administrative nightmare in an asset sale particularly if a contract is central to the running of the business post completion.
Employees: In a share purchase, the employing entity (i.e the company) stays the same. With an asset purchase, the staff must by TUPE transferred over to the entity buying the assets which can complicate the process. It is important to get proper advice from an employment specialist in these circumstances.
Property: As with employees, any property which forms part of the deal will need to be transferred in its own right in an asset sale. In a share purchase structure, the property will remain owned by the company which is the target of the sale and will technically not change hands. Property transfers can be complex or costly, particularly in a leasehold scenario where consent of the landlord is required.
Tax: With a share sale, there will be tax payable by the sellers for their shares. In some cases a seller will be entitled to Entrepreneur's Relief. With an asset sale, the parties would usually look to transfer the business as a going concern for the purposes of VAT. It is important to get detailed advice from an accountant before making this decision.
In general, a share sale is a much 'cleaner' and less complex way to structure a deal which has led to its popularity, although this is not necessarily always the case. It is important to give consideration to how a deal is to be structured in the early stages and always obtain proper legal and tax advice before going ahead.
Walt Disney Co. has set the date: It expects to wrap up its $71.3-billion acquisition of much of Rupert Murdoch’s 21st Century Fox by March 20. Disney’s purchase of the Fox assets — first unveiled in December 2017 — will likely transform the company into an entertainment Goliath, towering over its traditional competitors. Disney’s goal is to expand its programming pipeline to better compete against Netflix, Amazon.com and Apple Inc., technology companies that have sparked major shifts in consumers’ viewing behavior.