PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 31, Problem 19PS
a)
Summary Introduction
To match: The given term with correct description or definition.
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Why might one company have to complete more due diligence than another in a merger?
A. None of these answers
B. It is important for a company to know what it is buying
C. Acquisitions can be risky
D. If there is a large size discrepancy the merger seems more like an aquis
Which of the following LEAST accurately describes the advantages of specific types of mergers and acquisitions?a. The catch-all term for the benefits from M&As is synergy.b. A diversified group of business may further acquire other businesses in a conglomerate type of acquisition.c. The acquisition of an entity outside the industry and supporting services will result to decrease in cost of production of the acquirer.d. Financial advantages of M&A include decreased operating costs, increased financial capacity, and combined sales.
A(n) ________________ occurs when the management of the target company purchases a controlling interest in that company and the company incurs a significant amount of debt as a result.
a.
greenmail
b.
statutory merger
c.
poison pill
d.
leveraged buyout
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- TRUE OR FALSE 1. The merger of two completely unrelated enterprises is referred to as a congeneric merger, however, the merger of somewhat related companies is referred to as a conglomerate merger of somewhat related companies is referred to as conglomerate merger. 2. if there is sufficient proof that the acquisition has been made for a business purpose and the shareholders of the target firm will be compensated with voting shareholders of the target firm will be compensated with voting shares in the acquiring firm, the acquisition will be non-taxable. 3. with cash consideration, the stockholders of the target firm share the gains and losses of acquisition and vice-versa. 4. A merger is the total absorption of one firm by another, however with a consolidation an entirely new firm is created. 5. A white knight is a friendly suitor that a target firm turns to as an alternative to a hostile bidder.arrow_forwardIt is often difficult to draw a distinctive line between mergers and takeovers, and the terms tend to be used rather loosely to describe the process by which firms combine. In principle, a merger may be defined as a combination of firms of approximately equal standings on the basis of an agreement between their respective managements who recognize some mutual advantage in he arrangement. A merger can result in a new company being formed or one of the two companies absorbs the other. Required: i. Describe various types of mergers and critically discuss the motives for undertaking mergers and takeover. ii. Identify the organ(s) or institution(s) that regulates/approves the mergers and acquisitions in Tanzania and discuss all steps/procedures to be undertaken by the merging companies in Tanzania as required by the regulator for a merger to be successful. iii. Identify any recent Merger and Acquisition in Tanzania, discuss its type and the motive behind it.arrow_forwardWhich is not a valid, acceptable reason for companies to merge? Synergistic benefits arising from mergers. Reduction in competition resulting from mergers. Acquisition of assets at below replacement value. Attempts to minimize taxes by acquiring a firm with large accumulated losses that can be used immediately. Using surplus cash to acquire another firm and prevent unfavorable tax consequences for shareholders.arrow_forward
- Which of the following statements is most CORRECT? Oa. The primary rationale for most operating mergers is synergy. Ob. In most mergers, the benefits of synergy and the premium the acquirer pays over the market price are summed and then divided equally between the shareholders of the acquiring and target firms. Oc. Financial theory says that the choice of how to pay for a merger is really irrelevant because, although it may affect the firm's capital structure, it will not affect its overall required rate of return. Od. The basic rationale for any financial merger is synergy and, thus, the estimation of pro forma cash flows is the single most important part of the analysis. Oe. The acquiring firm's required rate of return in most horizontal mergers will not be affected, because the 2 firms will have similar betas.arrow_forwardWhich of the following statements is most CORRECT? Oa. Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification, including more stable earnings. However, since shareholders are free to diversify their own holdings, and at what's probably a lower cost, diversification benefits is generally not a valid motive for a publicly held firm. Ob. The smaller the synergistic benefits of a particular merger, the greater the scope for striking a bargain in negotiations, and the higher the probability that the merger will be completed. Oc. Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarely relevant considerations when considering a merger. Od. Operating economies are never a motive for mergers. Oe. Tax considerations often play a part in mergers. If one firm has excess cash, purchasing another firm exposes the purchasing firm to additional taxes. Thus, firms with excess…arrow_forwardWhen one company buys the assets and liabilities of another company, this is known as which of the following?Choose one answer.a. Limited liability company b. Merger c. Conventional corporation d. Acquisitionarrow_forward
- Do solve it as soon as possible Identify which statement is not correct. In a takeover bid to acquire a part or all shares in another company: Select one: a. Friendly merger reduces the chance of overpaying for target’s shares. b. Successful acquirer is likely to pay more for target’s shares in scenarios that include multiple rival bidders. c. Target company management would not accept an offer where the consideration for target’s shares exceeds the NPV of the merger. d. Hostile takeover may result in overpaying for target’s shares.arrow_forwardwhich of the following does not explain the poor performance of mergers and acquisitions ? i. Managers inaccurately value a target firm beacuse they believe the target firm is undervalued. ii. Mergers benefit may be underestimated iii. Managers mayhave priorities other than the interest of the shareholders a. II only b. III only c. I only d. e. II and III onlyarrow_forwardDiversification is considered a dubious reason for merger because:Select one: a. Risk reduction is achieved by more by bondholders than stockholders b. Personal diversification is possible by the shareholders themselves c. Diversification only minimizes unsystematic risk d. All of the abovearrow_forward
- Choose all that are not appropriate statements regarding business combinations and divestures. 1. A businesses that is in an industry where economies of scale is observed have an incentive to enlarge its operation through a merger. 2. A corporation is sometimes forced to divest a part of its business due to its excessive market power. 3. Two corporations that are planning to merge as equal partners should create a new legal entity (a "business combination") because that would be less costly than absorbing one corporation into another (an "absorption"). 4. A corporation seeking to acquire another corporation can do so by buying shares of the target through the open market. 5. The board of a corporation that have agreed to merge with another corporation should categorically reject a merger offer from another corporation because that would result in a breach of contract for the first merger agreement.arrow_forwardWhich one of the following statements correctly applies to a merger? Multiple Choice The acquiring firm does not have to seek approval for the merger from its shareholders. The shareholders of the target firm must approve the merger. The acquiring firm will acquire the assets but not the debt of the target firm. The merged firm will have a new company name. The titles to individual assets of the target firm must be transferred into the acquiring firm's name.arrow_forwardThe following are sentences relating to types of mergers and acquisitions. Which is/are true? [S1] Both horizontal and product-extension types of M&A involve catering to the same market group before and after the M&A. [S2] A vertical M&A involves a supplier or buyer of the acting firm as the target firm.a. Only S1 is true.b. Only S2 is true.c. Neither is true.d. Both are true.arrow_forward
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