Mergers, Acquisitions, and Other Restructuring Activities 7th Edition

Chapter 1: Introduction to Mergers, Acquisitions, and Other Restructuring Activities Examination Questions and Answers True/False: Answer True or False to the following questions: 1. A divestiture is the sale of all or substantially all of a company or product line to another party for cash or

12 Answer: Firms having substantial market relative to their next largest competitor are likely to have lower cost structures due to economies of scale and purchasing, as well as lower sales, general and administrative costs. Such costs can be spread over a larger volume of revenue. Also, the confectionery

Chapter 10: Analysis and Valuation of Privately Held Companies Examination Questions and Answers 1. Both public and private firms always attempt to maximize earnings growth. True or False Answer: False Answer: False Answer: False 2. Financial information for both public and private firms is equally

Chapter 11: Structuring the Deal: Payment and Legal Considerations Examination Questions and Answers 1. Deal structuring is fundamentally about satisfying as many of the primary objectives of the parties involved and deciding how risk will be shared. True or False Answer: True Answer: True Answer: True

14 1. What was the form of payment employed by both bidders for Unocal? In your judgment, why were they different? Be specific. Answer: Chevron offered Unocal shareholders three options including all cash, all stock, and a combination of both. CNOOC countered with an all-cash bid.

Chapter 12: Structuring the Deal: Tax and Accounting Considerations Examination Questions and Answers 1. Taxes are an important consideration in almost any transaction, and they are often the primary motivation for an acquisition. True or False Answer: False Answer: False Answer: False 2. From the

1 Chapter 13: FINANCING THE DEAL Private Equity, Hedge Funds, and Other Sources of Financing Examination Questions and Answers 1. Leveraged buyout firms use the unencumbered assets and operating cash flow of the target firm to finance the transaction. True or False Answer: True Answer:

16 The largest LBO in history is as well known for its theatrics as it is for its substantial improvement in shareholder value. In October 1988, H. Ross Johnson, then CEO of RJR Nabisco, proposed an MBO of the firm at $75 per share. His failure to inform the

1 Answer: True 1 Answer: True 1 Answer: True Chapter 14: HIGHLY LEVERAGED TRANSACTIONS: LBO Valuation and Modeling Basics Examination Questions and Answers 1. An LBO can be valued from the perspective of common equity investors only or all those who

16 Answer: The boards fiduciary responsibilities were to maximize shareholder value. The boards actions resulted in RJR shareholders receiving more than twice what the value of their shares were on the day the MBO group announce its initial bid. Conceivably, shareholder value could have been increased had existing RJR management

Chapter 15 Business Alliances: Joint Ventures, Partnerships, and Alliances Examination Questions and Answers 1. Business alliances may represent attractive alternatives to mergers and acquisitions. True or False Answer: True Answer: True Answer: True 2. A joint venture is rarely an independent legal entity such as

12 Neither SAB nor Coors were particularly profitable in the U.S. and were threatened with declining market share in an increasingly mature market for their products. However, with both Molson and Coors family name on their products, neither family was willing to completely cede control. Consequently, the JV represented

Chapter 16: Alternative Exit and Restructuring Strategies Divestitures, Spin-Offs, Carve-Outs, Split-Ups, and Split-Offs Examination Questions and Answers 1. Divestitures, spin-offs, equity carve-outs, split-ups, and bust-ups are commonly used strategies to exit businesses. True or False Answer: True Answer: True Answer: True 2. Empirical studies

Chapter 17 Alternative Exit and Restructuring Strategies: Bankruptcy Reorganization and Liquidation Examination Questions and Answers True/False: Answer True or False to the following questions: (50 T/Fs) 1. For capital markets to function smoothly, disputes involving the legal rights of all participants (both debtors and creditors) need to

Chapter 18 Cross-Border Mergers and Acquisitions: Analysis and Valuation True and False Examination Questions 1. Globally integrated capital markets provide foreigners with unfettered access to local capital markets and local residents to foreign capital markets. True or False Answer: True Answer: True Answer: True

Chapter 2 The Regulatory Environment Examination Questions and Answers Answer true or false to the following questions. 1. Insider trading involves buying or selling securities based on knowledge not available to the general public. True or False Answer: True Answer: True Answer: True

to ignore that GE had only an 8 percent share of the global airplane leasing market and would therefore seemingly lack the market power the commission believed it could exert. On July 4, 2001, the European Union vetoed the GE purchase of Honeywell, marking it the first time a

Chapter 3: The Corporate Takeover Market: Common Takeover Tactics, Anti-Takeover Defenses, and Corporate Governance Examination Questions and Answers 1. Friendly takeovers are negotiated settlements that are often characterized by bargaining, which remains undisclosed until the agreement has been signed. True or False Answer: True Answer: True

14 Answer: Because of the plethora of competing alternatives, it does not appear that consumers will be hurt. However, because of the general lack of alternatives, business customers may experience an increase in cost of telecommunication services. The FCC and FTC may require that the combined firms dispose of

Chapter 4 Planning: Developing Business and Acquisition PlansPhases 1 & 2 of the Acquisition Process Examination Questions and Answer 1. A planning-based acquisition process consists of both a business plan and acquisition plan, which drive all subsequent phases of the acquisition process. True or False Answer: True

Chapter 5 Implementation: Search through ClosingPhases 3 to 10 Examination Questions and Answers 1. The first step in establishing a search plan for potential acquisition or merger targets is to identify the primary screening or selection criteria. True or False Answer: True Answer: True Answer: True

13 Opportunities and Threats Opportunities New Distribution Channels. Mattel.com represents 80 separate toy and software offerings. Mattel hopes to spin this operation off as a separate company when it becomes profitable. Mattel.com lost about $70 million in 1999. The other new channel for distributing toys is

Chapter 6 Integration: Mergers, Acquisitions, and Business Alliances Examination Questions and Answers 1. The integration process if done effectively can help to mitigate the potential loss of employees. True or False Answer: True Answer: True Answer: True 2. Integration is among the most important factors contributing

monitoring of transactions. By setting priorities early in the process and employing small, project-focused teams, Coty was able to integrate successfully the complex supply chains of the firms in a timely manner. Discussion Questions 1. Do you agree with Coty management's decision to focus on integrating "customer-facing" systems first?

Chapter 7: Merger and Acquisition Cash Flow Valuation Basics Examination Questions and Answers True and False Questions: Answer true or false to the following questions: (Circle True or False) 1. In calculating the weighted average cost of capital, the weights should be estimated using the market

Chapter 9: Applying Financial Modeling To Value, Structure, and Negotiate Mergers and Acquisitions Examination Questions and Answers 1. The scrupulous application of GAAP ensures both consistency in comparing one firms financial performance with another and the accuracy of the data. True or False Answer:

Most U.S. newspapers are mired in the mature or declining phase of their product life cycle. For the past half-century, newspapers have watched their portion of the advertising market shrink because of increased competition from radio and television. By the early 1990s, all major media began taking a significant hit

The disadvantages of exporting include high transportation costs, exchange rate fluctuations, and possible tariffs placed on imports into the local country. True or False Answer: True True True Takeover attempts are likely to increase when the market value of a firm's assets is more than their replacement value. True or False Answer: False False False Employee stock ownership

Debt issues not secured by specific assets are called debentures.True or False Answer: True True True When one company acquires another, year over year historical earnings comparisons for the acquiring firm are unaffected. True or False Answer: False False False Corporate anti-takeover defenses are necessarily a sign of bad corporate governance. True or False Answer: False False False Proxy contests and tender

The court must approve any plan accepted by the debtor's shareholders and creditors. True of False Answer: False False False Parent firms often exit businesses that consistently fail to meet or exceed the parent's hurdle rate requirements. True or False Answer: True True True The purpose of Chapter 15 of the U.S. Bankruptcy Code is to prioritize the payment

Empirical evidence suggests that discounts have declined in recent years. True or False Answer: True True True If free cash flow to the firm is expected to remain at $10 million indefinitely and the firm's cost of equity is .10, the present value of the firm is $100 million. True or False Answer: False False False U.S. bankruptcy

It is easy to differentiate between political and economic risks, since they are generally unrelated. True or False Answer: False False False So-called permanent financing for an acquisition usually consists of long-term unsecured debt. True or False Answer: True True True So-called Morris Trust transactions tax code rules restrict how certain types of corporate deals can be structured

An option is the exclusive right, but not the obligation, to buy, sell, or use property for a specific period of time in exchange for a predetermined amount of money. True or False Answer: True True True If a buyer expects that the target firm's revenue has been overstated, the buyer can reconstruct revenue by examining

Factors contributing to the integration of global capital markets include the reduction in trade barriers, removal of capital controls, the growing disparity in tax rates among countries, floating exchange rates, and the free convertibility of currencies. True or False Answer: False False False Poorly defined roles and responsibilities are an important factor contributing to

A buyer may divest a significant portion of the acquired company immediately following closing without jeopardizing the tax-free status of the transaction. True or False Answer: False False False During periods of high inflation, the market value of assets is often less than their book value. This often creates an attractive M&A opportunity. True

If an investor anticipates a future cash flow stream of five or ten years, she needs to use either a five- or ten-year Treasury bond rate as the risk-free rate. True or False Answer: True True True Deal structuring is fundamentally about satisfying as many of the primary objectives of the parties involved and deciding

An acquisition plan is developed if management determines that an acquisition or merger is required to implement the firm's business strategy. True or False Answer: True True True Asset based lending does not require the borrower to pledge assets as collateral underlying the loans. True or False Answer: False False False Analysts have increasingly used the relationship between

JVs established as partnerships typically raise capital through increased contributions from existing partners or through the issuance of limited partnership interests to investors, with the sponsoring firms becoming the general partners. True or False Answer: True True True The signing of a letter of intent usually precludes the target firm from suing the potential

Tender offers always consist of an offer to exchange acquirer shares for shares in the target firm. True or False Answer: False False False The extremely high leverage associated with leveraged buyouts significantly increases the riskiness of the cash flows available to equity investors as a result of the increase in fixed interest and

The weighted average cost of capital (WACC) is the broadest measure of the firm's cost of funds and represents the return that a firm must earn to induce investors to buy its common stock. True or False Answer: False False False In contacting large, publicly traded firms, it is usually preferable to make initial

Cash flow lenders view the borrower's future cash flow generation capability as the primary means of recovering a loan, while largely ignoring the assets of the LBO target. True or False Answer: False False False Stock purchases involve the exchange of the target's stock for acquirer stock only. True or False. Answer: False False False Poison pills represent a

Pacific Wardrobe Acquires Surferdude Apparel by a Skillful Structuring of the Acquisition Plan Pacific Wardrobe (Pacific) is a privately owned California corporation that has annual sales of $20 million and pretax profits of $2 million. Its target market is the surfwear/sportswear segment of the apparel industry. The surfwear/sportswear market consists of two

Despite the lack of public exchanges for privately held firms, Wall Street analysts have ample incentive to analyze such firms in search of emerging companies. True or False Answer: False False False In the adjusted present value method, the levered cost of equity is used for discounting cash flows during the period in which

The market model of corporate governance is readily applicable to privately held, family owned firms. True or False Answer: False False False Joint venture and alliance agreements often limit how and to whom parties to the agreements can transfer their interests. True or False Answer: True True True Firms adopting a focus strategy tend to concentrate their efforts

Buyers generally want to complete due diligence on the seller as quickly as possible. True or False Answer: False False False Arbitrage should drive the prices in different markets to be the same, as investors sell those assets that are undervalued to buy those that are overvalued. True or False Answer: False False False Contingency plans are actions

Bylaws may provide for a staggered board, the inability to remove directors without cause, and supermajority voting requirements for approval of mergers. True or False Answer: True True True A workout is an arrangement conducted inside of bankruptcy court by a debtor and its creditors for payment or re-scheduling of payment of the debtor's

The acquisition of a coal mining business by a steel manufacturing company is an example of a vertical merger. True or False Answer: True True True All materials in a proxy contest must be filed with the SEC before they are sent to shareholders. True or False Answer: True True True A firm's credit rating is a poor measure

The U.S. Securities Act of 1933 requires that all securities offered to the public must be registered with the government. True or False Answer: True True True The methodology for valuing cross-border transactions using discounted cash flow analysis is substantially different from that employed when both the acquiring and target firms are within the

In a purchase of assets, the buyer retains the target's tax attributes. True or False Answer: False False False The Type C reorganization is used when it is essential for the acquirer not to assume any undisclosed liabilities. True or False Answer: True True True For financial reporting purposes, the parent firm should account for the spin-off of

Market share is usually easy to define. True or False Answer: False False False The adjusted present value method values firm without debt and then subtracts the value of future tax savings resulting from the tax-deductibility of interest. True or False Answer: False False False Environmental laws in the European Union are generally more restrictive than in the

Acquirer stock is a rarely used form of payment in large transactions. True or False Answer: False False False Successful alliances are usually characterized by partners who have attributes that either complement existing strengths or significant weaknesses. True or False Answer: False False False Successful alliances are often those in which the partners contribute money, which is generally more

EBITDA has become an increasingly popular measure of value for privately held firms in recent years. True or False Answer: True True True Beta is a measure of non-diversifiable risk. True or False Answer: True True True Financial restructuring generally refers to actions taken by the firm to change total debt and equity structure. True or False Answer: True True True The

Using the cost of capital method to value LBOs requires adjusting the firms unlevered beta in each period using the firm's projected debt-to-equity ratio for that period. True or False Answer: False False False The empirical evidence supports the presumption that bigger is always better when it comes to acquisitions. True or False Answer: False False False The discounted

Non-U.S. buyers intending to make additional acquisitions may prefer a holding company structure. True or False Answer: True True True An LBO transaction makes sense from the viewpoint of all investors if the present value (of the cash flows to the firm or enterprise value, discounted at the weighted-average cost of capital, equals or exceeds

Bridge financing is usually expected to be replaced within two years after the closing date of the LBO transaction. True or False Answer: False False False Purchaser-supplier relationships are also called logistics alliances. True or False Answer: True True True Form of payment may consist of something other than cash, stock, or debt such as tangible and intangible

The weighted average cost of capital consists only of debt and equity. True or False Answer: False False False The comparable companies' method and recent transactions methods of valuation are conceptually similar. True or False Answer: True True True A tender offer is a proposal made directly to the target firm's board as the first step leading to