Mergers, Acquisitions, and Divestitures

Which of the following best describes a merger as a form of acquisition?

What is the primary legal difference between a merger and a consolidation?

An acquisition where both the acquiring firm and the target firm are in the same industry is classified as what type of acquisition?

Oracle, a software company, purchasing Sun Microsystems, a computer hardware manufacturer, is an example of what type of acquisition?

Firm A has a value of 500 million dollars and Firm B has a value of 100 million dollars. If Firm A acquires Firm B and the value of the combined firm, V_AB, is 700 million dollars, what is the synergy from the acquisition?

Which of the following is NOT listed as a source of synergy from an acquisition?

How can a merger create tax gains for the combined firm?

Global Resources, with a P/E ratio of 25, acquires Regional Enterprises, with a P/E ratio of 10. The merger creates no synergy. After the merger, the combined firm has an EPS of 1.43 dollars. If the market is 'fooled' and continues to apply a P/E ratio of 25 to the combined firm, what will be the new stock price per share?

Why is diversification, by itself, generally considered an insufficient justification for a corporate merger?

When two firms merge, the reduction in the combined firm's risk of default, known as the coinsurance effect, primarily benefits which group?

Firm A has debt with a value of 25 million dollars and equity with a value of 25 million dollars. Firm B has debt with a value of 12.50 million dollars and equity with a value of 12.50 million dollars. After a merger with no synergy, the combined firm's debt is worth 45 million dollars. What is the total loss to the stockholders of both firms from this merger?

Firm A, valued at 500 million dollars, acquires Firm B for 150 million dollars in cash. The combined firm's value is 700 million dollars. What is the Net Present Value (NPV) of the acquisition to Firm A?

What is the primary characteristic of a hostile takeover?

Under the Williams Act, a tender offer must be held open for at least how many days?

What defensive tactic involves amending the corporate charter so that only a fraction of the board of directors is elected each year?

A defensive tactic where a firm buys back its own stock from a potential bidder at a substantial premium is known as what?

Empirical research on the value created by mergers consistently shows that which group benefits the most?

In a taxable acquisition, what is the tax consequence for the shareholders of the acquired firm?

In the purchase method of accounting for an acquisition, how is goodwill calculated?

What is the key characteristic of a leveraged buyout (LBO)?

What is the primary difference between a corporate spin-off and a sale of a division?

In a transaction where a firm turns a division into a separate entity and then sells shares of that entity to the public while retaining a large interest, what is this type of divestiture called?

What is the primary purpose of a poison pill defense?

When a firm is acquired, shareholders of the acquired firm can demand that the acquiring firm purchase their shares at a fair value. What is this right called?

A firm sells a division to another company for cash. This transaction is an example of what?

Firm X, with 25 shares outstanding, acquires Firm B, with 10 shares outstanding, in a stock-for-stock merger. The combined firm's value is 700 dollars. If Firm X exchanges 7.5 of its shares for all of Firm B's shares, what is the cost of the merger to Firm A's stockholders?

Which of the following describes a key advantage of an acquisition of stock over a merger?

What is the term for a general and imprecise transfer of control of a firm from one group of shareholders to another, which can occur via acquisition, proxy contest, or going-private transaction?

Firm A acquires Firm B, with a book value of 10 million dollars, for a cash price of 19 million dollars. The fair market value of Firm B's individual assets is 16 million dollars. Using the purchase method of accounting, what is the value of goodwill recorded on the post-merger balance sheet?

What is the term for a securities filing that an acquirer must submit to the SEC within 10 days of obtaining a 5 percent holding in a target's stock?

What term describes the strategic benefit of entering a new industry through an acquisition to gain a foothold for future expansion into related product clusters?

When two firms merge, bondholders gain because their debt is now backed by the assets of the combined firm, reducing default risk. This phenomenon is known as the:

Global Resources (100 shares outstanding, P/E of 25) acquires Regional Enterprises (100 shares outstanding, P/E of 10) in a stock-for-stock merger that creates no synergy. Global exchanges 40 of its shares for all 100 shares of Regional. If the market is 'smart', what will be the P/E ratio of the combined firm?

Which form of divestiture results in the parent company receiving cash?

What is the primary reason that a parent corporation might issue a tracking stock?

Which statement best explains why shareholders of an acquiring firm might be hurt by a merger, even if there is no premium paid?

A procedure involving corporate voting where an insurgent group of shareholders solicits votes from other shareholders to gain seats on the board of directors is known as a:

What is a 'white squire' in the context of takeover defenses?

A defensive tactic where a company takes on a large amount of debt to finance a large dividend or share repurchase, making it less attractive to a bidder, is called a:

According to agency theory, why might managers of a cash-rich firm be more likely to attempt acquisitions?

In a tax-free acquisition where the acquiring firm does not elect to write up the target's assets, what is the tax implication for the acquiring firm regarding depreciation?

Two firms, each with the ability to borrow 100 million dollars individually, merge. Due to risk reduction, the combined firm can borrow 250 million dollars. This increase in borrowing ability is referred to as:

What is the primary motivation for firms to engage in a leveraged buyout (LBO) according to the 'carrot and the stick' explanation?

Firm A has a market value of 62 million dollars. It is acquiring Firm B, whose market value is 45 million dollars. The acquisition will create 1.1 million dollars in aftertax cash flows indefinitely. The appropriate discount rate is 12 percent. What is the value of Firm B to Firm A?

A 'board out' clause in a corporate charter is typically associated with which defensive tactic?

If a merger is a purely 'financial' merger with no operational synergies, and its primary effect is to reduce the combined firm's return volatility, who is likely to gain value and who is likely to lose value?

If Flannery Company, with 73,000 shares and 230,000 dollars in earnings, is acquired by Stultz Corporation, with 146,000 shares and 690,000 dollars in earnings, in a stock swap where 1 share of Stultz is exchanged for 3 shares of Flannery, what will the earnings per share (EPS) of the combined company be?

A 'cleanup merger' is most likely to occur under which of the following circumstances?

Which of the following is considered a 'bad' reason for a merger, as it is unlikely to create value for shareholders on its own?

What is the primary difference in how assets are valued on the post-merger balance sheet between a taxable acquisition where the acquirer writes up assets and a tax-free acquisition?