Question 1

The empirical evidence strongly indicates that the equityholders of the target firm realize large wealth gains as a result of a takeover bid but the equityholders in the acquiring firm gain little,if anything.Although there exists no definitive answer as to why this is the case,several possible explanations have been proposed.List and explain three of these possible explanations for the minimal returns to the acquiring firm's equityholders.

Accepted Answer

Size differentials,competition in the takeover market,lack of achieving merger gains,management goals other than the best interests of the shareholders,and early announcements of corporate acquisition intent are all presented as possible explanations in the textbook.

Question 2

A change in the corporate charter making it more difficult for the firm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:

Accepted Answer

A)  supermajority amendment.
B)  standstill agreement.
C)  greenmail provision.
D)  poison pill amendment.
E)  white knight provision.F) A) and B)
G) A) and C)

Question 3

Firm Q is being acquired by Firm S for £30,000 worth of Firm S equity.The incremental value of the acquisition is £2,000.Firm Q has 1,900 shares of equity outstanding at a price of £15 a share.Firm S has 1,500 shares of equity outstanding at a price of £40 a share.What is the net present value of the acquisition given that the actual cost of the acquisition using company equity is £30,167?

Accepted Answer

A)  £167
B)  £225
C)  £333
D)  £425
E)  £433F) B) and D)
G) B) and E)

Question 4

Firm V was worth £450 and Firm A had a market value of £375.Firm V acquired Firm A for £425 because they thought the combination of the new Firm VA was worth £925.What is the synergy from the merger of Firm V and Firm A?

Accepted Answer

A)  £50
B)  £100
C)  £475
D)  £500
E)  None of the above.F) B) and C)
G) A) and E)

Question 5

Rudy's and Blackstone are all-equity firms.Rudy's has 1,500 shares outstanding at a market price of £22 a share.Blackstone has 2,500 shares outstanding at a price of £38 a share.Blackstone is acquiring Rudy's for £36,000 in cash.The incremental value of the acquisition is £3,500.What is the value of Rudy's Inc.to Blackstone?

Accepted Answer

A)  £30,000
B)  £32,500
C)  £33,000
D)  £36,500
E)  £39,500F) A) and E)
G) A) and D)

Question 6

The distribution of shares in a subsidiary to existing parent company equityholders is called a(n) :

Accepted Answer

A)  lockup transaction.
B)  bear hug.
C)  equity carve-out.
D)  spin-off.
E)  split-up.F) A) and D)
G) B) and C)

Question 7

A financial device designed to make unfriendly takeover attempts financially unappealing,if not impossible,is called:

Accepted Answer

A)  a golden parachute.
B)  a standstill agreement.
C)  greenmail.
D)  a poison pill.
E)  a white knight.F) All of the above
G) A) and E)

Question 8

Which one of the following combinations of firms would benefit the most through the use of complementary resources?

Accepted Answer

A)  A ski resort and a travel trailer sales outlet
B)  A golf resort and a ski resort
C)  A hotel and a home improvement center
D)  A swimming pool distributor and a kitchen designer
E)  A fast food restaurant and a dry cleanerF) C) and E)
G) A) and B)

Question 9

The sale of equity in a wholly owned subsidiary via an initial public offering is referred to as a(n) :

Accepted Answer

A)  split-up.
B)  equity carve-out.
C)  countertender offer.
D)  white knight transaction.
E)  lockup transaction.F) All of the above
G) A) and B)

Question 10

When evaluating an acquisition,you should:

Accepted Answer

A)  concentrate on book values and ignore market values.
B)  focus on the total cash flows of the merged firm.
C)  apply the rate of return that is relevant to the incremental cash flows.
D)  ignore any one-time acquisition fees or transaction costs.
E)  ignore any potential changes in management.F) B) and D)
G) All of the above C

Question 11

Firm A is acquiring Firm B for £25,000 in cash.Firm A has 2,000 shares of equity outstanding at a market value of £21 a share.Firm B has 1,200 shares of equity outstanding at a market price of £17 a share.Neither firm has any debt.The net present value of the acquisition is £1,500.What is the price per share of Firm A after the acquisition?

Accepted Answer

A)  £21.00
B)  £21.25
C)  £21.75
D)  £22.00
E)  £22.50F) A) and C)
G) C) and D)

Question 12

The complete absorption of one company by another,wherein the acquiring firm retains its identity and the acquired firm ceases to exist as a separate entity,is called a:

Accepted Answer

A)  merger.
B)  consolidation.
C)  tender offer.
D)  spinoff.
E)  divestiture.F) C) and D)
G) A) and B)

Question 13

A reason for acquisitions is synergy.Synergy includes:

Accepted Answer

A)  revenue enhancements.
B)  cost reductions.
C)  lower taxes.
D)  All of the above.
E)  None of the above.F) A) and B)
G) D) and E)

Question 14

Holiday & Sons is being acquired by Miller's for £20,000 worth of Miller's equity.Miller has 1,300 shares of equity outstanding at a price of £20 a share.Holiday has 1,000 shares outstanding with a market value of £18 a share.The incremental value of the acquisition is £2,000.What is the total number of shares in the new firm?

Accepted Answer

A)  1,000 shares
B)  1,300 shares
C)  1,500 shares
D)  2,000 shares
E)  2,300 sharesF) A) and B)
G) A) and C)

Question 15

When a building supply store acquires a lumber mill it is making a ______ acquisition.

Accepted Answer

A)  horizontal
B)  longitudinal
C)  conglomerate
D)  vertical
E)  complementary resourcesF) A) and E)
G) A) and D)

Question 16

Defensive merger tactics are designed to thwart unwanted takeovers and mergers.Do such activities work to the advantage of equityholders all of the time?
 Are these types of activities ethical?
 Who do you think benefits most from these activities?

Accepted Answer

Good answers will acknowledge that defen...

Question 17

One company wishes to acquire another.Which of the following forms of acquisition does not require a formal vote by the shareholders of the acquired firm?

Accepted Answer

A)  Merger
B)  Acquisition of equity
C)  Acquisition of assets
D)  Consolidation
E)  All of the above require a formal vote.F) A) and B)
G) All of the above

Question 18

Which of the following is not true of an acquisition of equity or tender offers?

Accepted Answer

A)  No equityholder meetings need to be held.
B)  No vote is required.
C)  The bidding firm deals directly with the equityholders of the target firm.
D)  In most cases,100% of the equity of the target firm is tendered.
E)  All of the above are true of tender offers.F) C) and D)
G) None of the above

Question 19

Suppose that Exxon-Mobil acquired Schlumberger,an exploration/drilling company.Ignoring potential antitrust problems,this merger would be classified as a:

Accepted Answer

A)  monopolistic merger.
B)  vertical merger.
C)  conglomerate merger.
D)  horizontal merger.
E)  None of the above.F) A) and B)
G) B) and E) B

Question 20

A dissident group solicits votes in an attempt to replace existing management.This is called a:

Accepted Answer

A)  tender offer.
B)  shareholder derivative action.
C)  proxy contest.
D)  management freeze-out.
E)  shareholder's revenge.F) All of the above
G) B) and D)

Exam 29: Mergers and Acquisitions

Correct Answer
verified
Size differentials,competition in the takeover market,lack of achieving merger gains,management goals other than the best interests of the shareholders,and early announcements of corporate acquisition intent are all presented as possible explanations in the textbook.

A change in the corporate charter making it more difficult for the firm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:

Correct Answer
verified

Correct Answer
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Firm V was worth £450 and Firm A had a market value of £375.Firm V acquired Firm A for £425 because they thought the combination of the new Firm VA was worth £925.What is the synergy from the merger of Firm V and Firm A?

Correct Answer
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Correct Answer
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The distribution of shares in a subsidiary to existing parent company equityholders is called a(n) :

Correct Answer
verified

A financial device designed to make unfriendly takeover attempts financially unappealing,if not impossible,is called:

Correct Answer
verified

Which one of the following combinations of firms would benefit the most through the use of complementary resources?

Correct Answer
verified

The sale of equity in a wholly owned subsidiary via an initial public offering is referred to as a(n) :

Correct Answer
verified

When evaluating an acquisition,you should:

Correct Answer
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C

Correct Answer
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The complete absorption of one company by another,wherein the acquiring firm retains its identity and the acquired firm ceases to exist as a separate entity,is called a:

Correct Answer
verified

A reason for acquisitions is synergy.Synergy includes:

Correct Answer
verified

Correct Answer
verified

When a building supply store acquires a lumber mill it is making a ______ acquisition.

Correct Answer
verified

Defensive merger tactics are designed to thwart unwanted takeovers and mergers.Do such activities work to the advantage of equityholders all of the time? Are these types of activities ethical? Who do you think benefits most from these activities?

Correct Answer
verified
Good answers will acknowledge that defen...
View Answer

One company wishes to acquire another.Which of the following forms of acquisition does not require a formal vote by the shareholders of the acquired firm?

Correct Answer
verified

Which of the following is not true of an acquisition of equity or tender offers?

Correct Answer
verified

Suppose that Exxon-Mobil acquired Schlumberger,an exploration/drilling company.Ignoring potential antitrust problems,this merger would be classified as a:

Correct Answer
verified
B

A dissident group solicits votes in an attempt to replace existing management.This is called a:

Correct Answer
verified

Exam 29: Mergers and Acquisitions

Correct AnswerverifiedSize differentials,competition in the takeover market,lack of achieving merger gains,management goals other than the best interests of the shareholders,and early announcements of corporate acquisition intent are all presented as possible explanations in the textbook.

A change in the corporate charter making it more difficult for the firm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Firm V was worth £450 and Firm A had a market value of £375.Firm V acquired Firm A for £425 because they thought the combination of the new Firm VA was worth £925.What is the synergy from the merger of Firm V and Firm A?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The distribution of shares in a subsidiary to existing parent company equityholders is called a(n) :

Correct AnswerverifiedShow Answer

A financial device designed to make unfriendly takeover attempts financially unappealing,if not impossible,is called:

Correct AnswerverifiedShow Answer

Which one of the following combinations of firms would benefit the most through the use of complementary resources?

Correct AnswerverifiedShow Answer

The sale of equity in a wholly owned subsidiary via an initial public offering is referred to as a(n) :

Correct AnswerverifiedShow Answer

When evaluating an acquisition,you should:

Correct AnswerverifiedC

Correct AnswerverifiedShow Answer

The complete absorption of one company by another,wherein the acquiring firm retains its identity and the acquired firm ceases to exist as a separate entity,is called a:

Correct AnswerverifiedShow Answer

A reason for acquisitions is synergy.Synergy includes:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a building supply store acquires a lumber mill it is making a ______ acquisition.

Correct AnswerverifiedShow Answer

Defensive merger tactics are designed to thwart unwanted takeovers and mergers.Do such activities work to the advantage of equityholders all of the time? Are these types of activities ethical? Who do you think benefits most from these activities?

Correct AnswerverifiedGood answers will acknowledge that defen...View AnswerShow Answer

One company wishes to acquire another.Which of the following forms of acquisition does not require a formal vote by the shareholders of the acquired firm?

Correct AnswerverifiedShow Answer

Which of the following is not true of an acquisition of equity or tender offers?

Correct AnswerverifiedShow Answer

Suppose that Exxon-Mobil acquired Schlumberger,an exploration/drilling company.Ignoring potential antitrust problems,this merger would be classified as a:

Correct AnswerverifiedB

A dissident group solicits votes in an attempt to replace existing management.This is called a:

Correct AnswerverifiedShow Answer

Correct Answer
verified
Size differentials,competition in the takeover market,lack of achieving merger gains,management goals other than the best interests of the shareholders,and early announcements of corporate acquisition intent are all presented as possible explanations in the textbook.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Good answers will acknowledge that defen...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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B

Correct Answer
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