Exam 29: Mergers, Acquisitions, and Divestitures

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:

The acquisition of a firm in the same industry as the bidder is called a _____ acquisition.

Waterbury Co. has agreed to be acquired by Ferrier,Inc. for $25,000 worth of Ferrier stock. Ferrier currently has 1,500 shares of stock outstanding at a price of $21 a share. Waterbury has 1,000 shares outstanding at a price of $22. The incremental value of the acquisition is $4,000. What is the merger premium per share?

The empirical evidence strongly indicates that the stockholders of the target firm realize large wealth gains as a result of a takeover bid but the stockholders 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 stockholders.

Turner,Inc. has $4.2 million in net working capital. The firm has fixed assets with a book value of $48.6 million and a market value of $53.4 million. Martin & Sons is buying Turner,Inc. for $60 million in cash. The acquisition will be recorded using the purchase accounting method. What is the amount of goodwill that Martin & Sons will record on its balance sheet as a result of this acquisition?

Rudy's,Inc. and Blackstone,Inc. 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. What is the merger premium per share?

The shareholders of a target firm benefit the most when:

The purchase accounting method for mergers requires that:

The positive incremental net gain associated with the combination of two firms through a merger or acquisition is called:

Which one of the following statements is correct?

Firm A is planning on merging with Firm B. Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A. Firm A currently has 2,300 shares of stock outstanding at a market price of $20 a share. Firm B has 1,800 shares outstanding at a price of $15 a share. What is the value per share of the merged firm?

Suppose that a McDonalds acquired a small potato grower. This merger would be classified as a:

One of the most basic reasons for a merger is:

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

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

A proposed acquisition may create synergy by: I. increasing the market power of the combined firm. II) improving the distribution network of the acquiring firm. III) providing the combined firm with a strategic advantage. IV) reducing the utilization of the acquiring firm's assets.

Sometimes the management of a target firm fights a takeover attempt even when that attempt appears to be in the best interest of the shareholders. Why would management take this stance?

In a tax-free acquisition,the shareholders of the target firm:

Which of the following represent potential tax gains from an acquisition? I. A reduction in the level of debt II. An increase in surplus funds III. The use of net operating losses IV. An increased use of leverage

Firm A and Firm B join to create Firm AB. This is an example of: