Exam 22: Mergers and Acquisitions

Consider a case in which existing shareholders do not have to invest time and effort, but still participate in the gains from a takeover, while the bidder who puts in the time and effort is forced to give up substantial profits. This situation is called ________.

Which of the following statements is FALSE?

Which of the following statements 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 regarding monopoly mergers is FALSE?

When a hostile takeover appears to be inevitable, a target company will sometimes look for another, friendlier company to acquire it called a ________.

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

Which of the following questions is FALSE?

The period of the ________ is known as the conglomerate wave because firms typically acquired firms in unrelated businesses.

The period of the ________ is known for known for "strategic" or "global" deals that were more likely to be friendly and to involve companies in related businesses; these mergers often were designed to create strong firms on a scale that would allow them to compete globally.

A situation where every director serves a three-year term and the terms are staggered so that only one-third of the directors are up for election each year is called a ________.

Which of the following statements is FALSE?

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

Which of the following statements is FALSE?

Which of the following questions is FALSE?

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?

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.

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. -If Martin pays no premium to acquire Luther, what will the earnings per share be after the merger?

Consider two firms, Bob Company and Cat Enterprises, both with earnings of $10 per share and 5 million shares outstanding. Cat is a mature company with few growth opportunities and a stock price of $25 per share. Bob is a new firm with much higher growth opportunities and a stock price of $40 per share. Assume Bob acquires Cat using its own stock and the takeover adds no value. In a perfect capital market, how many shares must Bob offer Cat's shareholders in exchange for their shares?

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