Exam 18: Mergers, Lbos, Divestitures, and Business Failure

Tangshan Mining is attempting to acquire Zhengsen Mining. Selected financial data is presented for both companies in the table below: Tangshan Mining has sufficient authorized but unissued shares to carry out the proposed merger. (a) Calculate the EPS of Tangshan Mining and Zhengsen Mining before the merger. (b) If the ratio of exchange is 1.8, what will be the earnings per share of the merged company? (c) Repeat part (a) if the ratio of exchange is 2.0. (d) Repeat part (a) if the ratio of exchange is 2.2 (e) discuss the principal illustrated by your answers to parts (a) through (d)

The U.S. approaches used in hostile takeovers is an effective method of changing corporate control and used in many areas of the world including China and Japan.

Tangshan Mining is considering the acquisition of Zhengsen Mining at a cash price of $6,000,000. The primary motivation for Tangshan's purchase of Zhengsen is for a special piece of drilling equipment that it believes will generate after-tax cash flows if $2,000,000 per year during the next 5 years. Zhengsen Mining has liabilities of $9,000,000 and Tangshan estimates that it can sell the remaining assets $6,500,000. Tangshan will use a 15 percent cost of capital for evaluating the acquisition. Based on this information, what is the net value of the special drilling equipment?

A friendly merger transaction ________.

A(n) ________ is undertaken with the goal of restructuring the acquired company in order to improve its cash flow and unlock its hidden value.

The actual ratio of exchange in a stock-exchange acquisition is the ratio of the ________.

A friendly merger is a ________.

The advantages of holding companies include ________.

A reorganization plan ________.

An acquisition of a "cash-rich" company immediately increases the acquiring firm's borrowing power by decreasing its financial leverage.

In defending against a hostile takeover, the strategy involving the payment of a large, debt-financed, cash dividend is the ________ strategy.

Motive for merging includes ________.

A white knight is a takeover defense in which a firm issues securities that give their holders certain rights that become effective when a takeover is attempted and that make the target firm less desirable to a hostile acquirer.

A(n) ________ is a pro rata cash settlement of creditor claims.

In a voluntary settlement, each creditor will be paid 20 cents on a dollar in 120 days. The remaining 80 cents on a dollar will be paid within an additional 60 days. This is an example of ________.

If the P/E paid is greater than the P/E of the acquiring company, the effect on the earnings per share of the acquired company will be ________.

A vertical merger is a merger of two firms in the same line of business.

The basic difficulty in applying the capital budgeting approach to an acquisition of a going concern is the estimation of initial cash flows and certain risk consideration.

The "stakeholders" in targeted takeover companies include the ________.

Leveraged buyouts require a target firm ________.