Exam 22: Mergers and Acquisitions

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.

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 ________.

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

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?

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 ________.

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?