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

A financial merger is a merger transaction undertaken to achieve economies of scale.

ZhenYee Electronics, Inc. is considering the acquisition of Datamatic, Inc. at a cash price of $5,000,000. Datamatic, Inc. has short-term liabilities of $1,500,000. As a result of acquiring Datamatic, Inc., ZhenYee Electronics would also acquire rights to one major patent which would provide an estimated cash inflow of $1,800,000 per year for the next eight years. The firm has a cost of capital of 12 percent. Would you recommend the cash acquisition?

One of the key attributes that makes a firm a good candidate for an LBO is that it has a relatively low level of debt and a high level of liquid assets that could be used as loan collateral.

A hostile merger is accomplished through ________.

The long-run effect on the earnings per share of the merged firm depends largely on ________.

The U.S. approaches used in hostile takeovers is practically nonexistent in most other countries throughout the world including continental Europe and Asia.

An attractive candidate for acquisition through leveraged buyout usually has a relatively high level of debt and a low level of "bankable" assets.

Greenmail is a takeover defense under which a target firm repurchases a large block of stock at a premium from one or more shareholders in order to end a hostile takeover attempt by those shareholders.

One of the responsibilities of a debtor in possession (DIP) is the liquidation of a bankrupt firm's assets.

A ________ occurs when the operations of the acquiring and target firms are combined in order to achieve economies and thereby cause the performance of the merged firm to exceed that of the pre-merged firm.

A horizontal merger is a merger in which one firm acquires another firm in the same general industry but neither in the same line of business nor a supplier or customer.

A tender offer is a formal offer to purchase a given number of shares of a firm's stock at a specified price.

Cash acquisitions of going concerns are best analyzed using ________.

Before paying dividends, a subsidiary must pay federal and state taxes on its earnings.

In a Chapter 7 liquidation bankruptcy proceeding, the order of priority of satisfying claims is secured creditors, unsecured creditors, and then equity holders.

The motive for divestiture includes ________.

In a voluntary settlement, composition is an arrangement in which the creditor committee replaces the firm's operating management and operates the firm until all claims have been settled.

Most firms seeking merger partners will hire the services of a(n) ________.

One of the key attributes that makes a firm a good candidate for an LBO is that it has a relatively high level of debt and a low level of liquid assets.

A merger involving the purchase of a specific product line, rather than the whole company is ________.