Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 29, Problem 8CQ
Summary Introduction
To determine: The actions taken by management of a firm against a hostile acquisition bid from an unwanted suitor and benefits that target firm shareholders receive from defensive tactics and the actions that harmed target firm shareholders from hostile takeover.
Introduction:
It refers to the acquisition where a company acquires the ownership of another company that is target Company, against their rules and regulations.
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Students have asked these similar questions
How does a hostile takeover affect the company’s stakeholder (shareholders, executives, employees, and society in general)? Is it usually beneficial or detrimental to these stakeholders? Why?
What are some defensive tactics that firms can use to resist hostile takeovers?
Many firms have devised defenses that make it more difficult or costly for other firms to take them over. How might such defenses affect the firm's agency problems? Are managers of firms with formidable takeover defenses more or less likely to act in the shareholders' interests rather than their own? What would you expect to happen to the share price when management proposes to institute such defenses?
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Similar questions
- Are managers of firms with formidable takeover defenses more or less likely to act in the shareholders’ interest rather than their own?arrow_forwardSuggest some ways in which firms have tried to avoid being part of a target takeover.arrow_forwardAre poison-pill defenses ethical? If a potential acquirer buys company stock legally, thereby becoming a part owner of the company, should management be allowed to entrench itself against the wishes of this owner? Explain your answer.arrow_forward
- Explain the mechanism of using financial leverage as a takeover defense toolarrow_forwardIt is generally argued that the takeover constraint : Deters management from engaging in opportunistic behavior. Deters management from considering acquiring other companies. Deters management from declaring dividends. Deters management from increasing a firm’s level of borrowing.arrow_forwardIt is generally argued that the takeover constraint deters management from engaging in opportunistic behavior.deters management from considering acquiring other companies.deters management from declaring dividends.deters management from increasing a firm’s level of borrowing.arrow_forward
- What options does a company have if its board or management is opposed to an acquisition, a merger, or a takeover?arrow_forwardEthical Considerations. Are poison-pill defenses ethical? If a potential acquirer buys company stock legally,thereby becoming a part owner of the company, shouldmanagement be allowed to entrench itself against thewishes of this owner? Explain your answer.arrow_forwardWhich of the following is NOT normally regarded as being a barrier to hostile takeovers? (Points : 5) Abnormally high executive compensation Targeted share repurchases Shareholder rights provisions Restricted voting rights Poison pillsarrow_forward
- What are the factors that determine whether the company should use cash acquisition or stock acquisition? Discuss five different defensive tactics that the target company can use to thwart this takeover attempt. 3) What are the possible cash flow benefits from this acquisition?arrow_forwardFirms facing hostile takeovers often take actions to forestall the acquisition. For instance, a firm could borrow on terms that required immediate repayment if the firm is acquired or it could sell off undervalued assets to make itself a less desirable target. Such tactics are referred to as? Paul works for an investment bank in the corporate finance division. Along with the typical functions in his job role—such as finding a potential target company for a client which would add synergistic value to the client, finding a potential acquirer for a client, developing defensive tactics, establishing a fair value and financing operations—Paul also works with his team in conducting arbitrage operations. Based on your understanding of arbitrage operations complete the following sentence: In recent trade, Paul was assigned to buy 10% of a client’s shares from the open market at $45.50 per share and sell the shares at a price of $46.20 to a private investor, pocketing a return for his firm.…arrow_forwardIt is quite often we observe some firms takeover target firms from a different industry. If diversifying harms firm value and it is more efficient to make diversification at the investor (shareholder) level than at the firm level, why do you think the managements still choose to make diversified acquisitions?arrow_forward
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