Exam 22: Mergers and Acquisitions

Most acquirers pay an acquisition premium for a target. Upon announcement of the bid, the target's stock price increases, on average, so that the stock price is the same as the price bid by the acquirer.

Consider the following equation: < The term A in this equation refers to ________.

Which of the following statements is FALSE?

Which of the following statements regarding recapitalization as a takeover defense is FALSE?

Which of the following statements regarding poison pills is FALSE?

An extremely lucrative severance package that is guaranteed to a firm's senior managers in the event that the firm is taken over and the managers are let go is called a ________.

Use the information for the question(s)below. Martin Manufacturing has earnings per share (EPS)of $3.00, 5 million shares outstanding, and a share price of $32. Martin is considering buying Luther Industries, which has earnings per share of $2.50, 2 million shares outstanding, and a share price of $20. Martin will pay for Luther by issuing new shares. There are no expected synergies from the transaction. -Assume that Martin pays no premium to acquire Luther. Calculate Martin's price-earnings (P/E)ratio both pre and post merger.

Which of the following statements regarding mergers and diversification is FALSE?

For a hostile takeover to succeed, the acquirer must appeal to the target shareholders; this is usually done through ________.

Which of the following statements is FALSE?

KT corporation has announced plans to acquire MJ corporation. KT is trading for $25 per share and MJ is trading for $45 per share, with a premerger value for MJ of $3 billion dollars. If the projected synergies from the merger are $750 million, what is the maximum exchange ratio that KT could offer in a stock swap and still generate a positive NPV?

Consider two firms, Thither and Yon. Both companies will either make $30 million or lose $10 million every year with equal probability. The companies' profits are perfectly negatively correlated. What are the expected after-tax profits of the combined company (Thither and Yon)in any year, assuming a corporate tax rate of 35% and no tax loss carry back or carry forward?

Which of the following questions is FALSE?

Mayo Corporation is currently trading at $30 per share. There are 10 million shares outstanding, and the company has no debt. You believe that the value of the company would increase by 50% if the management were replaced. How much would you need to offer in total to acquire 50% of Mayo's shares?

You work for a levered buyout firm and are evaluating a potential buyout of Boogle Inc. Boogle's stock price is $18, and it has 3 million shares outstanding. You believe that if you buy the company and replace its dismal management team, its value will increase by 50%. You are planning on doing a levered buyout of Boogle and will offer $25 per share for control of the company. Assuming you get 50% control, what will your gain from the transaction be?

Which of the following questions regarding risk arbitrage is FALSE?

Which of the following statements is FALSE?

The synergies of a merger add so much value to the combined firm that, upon announcement of a merger, the stock prices of both the target and the acquirer increase substantially.

Consider the following equation: < The term T in this equation refers to ________.

The period of the ________ is known for hostile, "bust-up" takeovers, in which the acquirer purchased a poorly performing conglomerate and sold off its individual business units for more than the purchase price.