Question

In April 2017, PetSmart agreed to make the largest e-commerce acquisition in history to date, putting a deal in place to snatch up fast-growing pet food and product site Chewy. com for $3.35 billion. The acquisition premium for this particular deal can be calculated as the amount by which the price PetSmart offered for Chewy.com exceeded the _______.A. amount paid as a down payment for Chewy.com that was to be held in escrow until closing.B. difference between the amount that was offered for Chewy.com and the amount that was held in escrow to complete the deal.C. preacquisition market value of Chewy.com.D. fair market value of similar companies in the same geographic locale as Chewy.com.E. comparable value of similar companies to Chewy.com within the same market.

Answer 1

Answer: C. preacquisition market value of Chewy.com.

Step-by-step explanation:

The Acquisition Premium that a company that is acquiring another pays is generally the Amount that that was paid minus the amount that the company being acquired was worth before it was purchased.

For Instance, assuming Chewy.com was valued at $3.25 billion before the Acquisition by PetSmart then the Acquisition Premium is,

= $3.35 billion - $3.25 billion

= $100 million.

In the balance sheet, this premium will more often than not be recorded as Goodwill which is defined as an Intangible Asset that is generated when a company buys another company for more than it is worth. That incremental value is the Goodwill.